Greetings, and welcome to the Haverty's Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A 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. Please go ahead.

Thank you, operator, and good morning. 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 SEC. Our Chairman and CEO, Clarence Smith, will now give you an update on our results and our President, Steve Burdette, will provide additional commentary about our business.

Good morning. Thank you for joining our third quarter conference call. Consolidated sales were $175.9 million, down 20.2% from last year. Earnings per common share were $0.29 versus $1.02. We are seeing a cautious consumer and we were impacted by the two hurricanes hitting our regions. We do believe that our customer is beginning to move back into the buying process based on an improvement in store traffic over the last month. We expect to see better traffic and sales once the elections are behind us. During the third quarter, we were excited about the opening of our new Pembroke Pines store in North Miami. We are pleased with the store traffic, which is on par with our other recent openings in South Haven, Mississippi and Destin, Florida, earlier this year. We expect to open three additional stores this year in St. Petersburg, Florida and Greenwood, Indiana, south of Indianapolis, and we began our return to Houston, Texas after 43 years with our first store in the Woodlands area in December. We expect to end the year with 129 stores. We're investing in store growth in our regions, which puts us in a strong position in the best markets in the country for future growth. Houston, the seventh-largest market in the country, is our top priority for the next two years. It is the largest market in our distribution footprint where we don't have stores. We opened a second store in Baybrook in January 2025, and we have several more potential locations that we are pursuing. We're committed to having a significant position in the Greater Houston market. The Houston stores will provide additional operating leverage and will be served by the expanded distribution center in Dallas.

Thank you, Clarence, and good morning. Our third quarter results were disappointing as we continue to face high interest rates, an unaffordable housing market, and the buildup to the presidential election. We were glad to see the Fed cut the interest rate by 50 basis points at their September meeting and remain cautiously optimistic that this will continue later this quarter and into 2025. With the election coming to a conclusion in less than a week, we are hopeful for a smooth transition leading up to inauguration day, which should provide a lift to our business environment. Our Labor Day event, which is a key selling period for the quarter, was down in the mid-teens compared to last year but there was an improvement over our Memorial Day event earlier this year, which was encouraging. As you know, we do not normally give a weather report but due to the devastation caused by Hurricane Helene in late September and Hurricane Milton in early October, we felt it necessary to update you on the impact to Havertys. We are glad to report that all our team members are safe. All our stores throughout Florida, Georgia, and the Carolinas, along with our Florida warehouse, had minimal damage to report from the two storms other than a few roof leaks and power outages which caused some extended closures. With Hurricane Helene, we had six markets and 11 stores that were closed from one to four days during the quarter. However, our Asheville, North Carolina, store was closed for 19 days over September and October, reopening on 10/16. With Hurricane Milton, there were five markets, 20 stores, and one warehouse affected in early October. Most stores in the warehouse were back operating within two to five days, with three stores closed for seven to ten days. With these types of events of this magnitude, it is not only the days you are closed but the distraction that is caused before the storm getting prepared and afterwards with the cleanup from the storm. It is a tremendous burden on our team members and our customers. Havertys is thankful and appreciative to our team members in Florida, Georgia, and the Carolinas for their unwavering commitment to their families, our customers, and Havertys. With regards to our website, due to continued A/B testing, we've made multiple modifications to enhance personalization, navigation, and wayfinding. Additionally, we've added some new features like augmented reality to improve the overall user experience. From a merchandising standpoint, our decor and upholstery categories are the best performing, driven by our design business. Bedding continues to perform within company averages, while bedroom and dining room are slightly below company averages. Overall, our store traffic continues to improve, but we are still seeing a more deliberate consumer, which has caused our closing rates to remain below last year's levels. However, those customers that are buying are spending more as our average ticket continues to rise over 3%, from last year to almost $3,500. Our design business continues to thrive, growing over 19% for the quarter as a percentage of our business. Our design and sales team remain focused on increasing the number of customers participating in design, 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 $7,300, which is roughly a 5% increase for the quarter. Our special order business continues to grow to 36% of our upholstery business, which is up 10% from last year. Our supply chain network was able to navigate through the port strike with no real impact on our customers. Our inventories continue to remain in excellent condition and were down 4% compared to Q2 and approximately 13% down from Q3 2023. Distribution, home delivery, and customer service continued to be focused on productivity and execution. While we continue to experience a difficult sales environment, we have all the reasons to remain optimistic about Havertys' future. Our margins are strong, our overall average ticket is growing, our design average ticket is growing, traffic is improving, closing percentages are stabilizing, expenses are well controlled, and inventories are balanced. We are growing five stores a year in difficult times. And finally, we are debt-free with over $100 million cash in the bank. I want to thank all the Haverty team members across the company for their hard work and dedication to furnishing happiness to our customers, at every point of contact. Now, I will turn the call over to Richard.

Thanks, Steve. In the third quarter of 2024, we reported net sales of $175.9 million, a 20.2% decrease over the prior year quarter. Comparable store sales were down 20.5% over the prior year period. Our gross profit margin decreased 60 basis points to 60.2% from 60.8%. 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 $2.3 million in the third quarter of 2023. Excluding the impact of our LIFO reserve, our gross margins increased over 50 basis points over the prior year quarter. SG&A expenses decreased $11.8 million, or 10.4%, to $100.9 million. As a percentage of sales, these costs approximated 57.4% of sales, up from 51.1% in the prior year quarter. We experienced decreased selling, advertising, administrative, warehouse, and delivery expenses during the quarter. Other income expenses in the third quarter were $333,000, and interest income was approximately $1.6 million during the third quarter of 2024. Income before income taxes decreased $16.1 million to $6.9 million. Our tax expense was $1.9 million during the third quarter of 2024, which resulted in an effective tax rate of 28.2%, compared to an effective tax rate of 25.1% in the third quarter of 2023. The primary difference in the effective rate and statutory rate is due to expected state income taxes and nondeductible items for the year. Net income for the third quarter of 2024 was $4.9 million, or $0.29 per diluted share on our common stock, compared to net income of $17.2 million, or $1.02 per share in the comparable quarter last year. Now turning to our balance sheet at the end of the third quarter, our inventories were $88.7 million, which was down $5.3 million from December 31, 2023, and down $13.6 million versus Q3 2023. At the end of the third quarter, our customer deposits were $43.9 million, which was up $8.1 million from the December 31, 2023 balance and down $2.4 million versus the Q3 2023 balance. We ended the quarter with $121.2 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the third quarter of 2024. Looking at some of the uses of our cash flow, CapEx was $24.3 million for the first nine months of 2024. We also paid out $15.3 million in regular dividends in the first nine months of 2024. We didn't utilize our share repurchase program during the third 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 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 SG&A expenses for 2024 are expected to be in the $279 million to $281 million range, which is a reduction in our previous estimate. We anticipate continued reductions in incentive compensation and professional fees during this year. The variable type costs within SG&A for 2024 are expected to be in the range of 19.6% to 19.9%. We anticipate continued reductions in third-party credit costs and delivery costs. Our planned CapEx for 2024 is $33 million, with anticipated investments in new or replacement stores, remodels and expansions accounting for $28 million, investments in our distribution network expected to be $2.5 million, and investments in our information technology expected to be approximately $2.5 million. Our anticipated effective tax rate for 2024 is expected to be 28%. This projection excludes the impact of vesting of stock awards and any new potential tax legislation. This completes my commentary on the third quarter financial results. Operator, at this time, we would like to open up the call for any questions.

Thanks. Good morning, guys. I wanted to talk a little bit about the impact of the hurricanes and the damage to housing, and how you expect that to impact demand over the longer term as the housing is rebuilt. Could you just talk about any anticipated demand longer-term from that?

Yes, Mike, we would expect it to be there. Our anticipation is probably it's going to be somewhere three to six months out before we start to see anything on that. Obviously, the two events were totally separate from each other, meaning Helene went up through Georgia and through North Florida. Obviously, most of the damage there and the impact will come out of Asheville, and we'll see how that recovers from that area. I think that will be longer-term. And then in Florida, which went right across the state affecting Tampa, Orlando, Fort Myers, obviously a big swath of our stores there. We anticipate there that we will see that probably a little bit quicker, as they'll recover faster out of that from those areas. But I don't know specifically what to expect, but we would definitely expect a lift from it.

Okay. Great. Yes, I would expect it also. And then just on the store opening, I mean you've announced a bunch of stores. But as you look at the weak consumer, how does that position you now for continued five-store growth annually longer-term?

We're not changing that. We think actually we may hit six stores net of five, but open six net and we have a relocation plan next year. So, our plan is five stores. You heard my comments there that the real focus is Houston; we want to get positioned there, that's our priority. So we're not backing off of that plan.

In tough times you guys are doing a great job. Company is well fundamentally positioned. I look forward to continued results. Thanks.

Thank you.

Good morning and thank you for the question. First, could you share any monthly trends you've observed, whether in written sales or delivered sales? Additionally, aside from the storm-related impact, did you notice any significant regional differences in sales trends?

Hey, good morning, Anthony. Let me take the numbers part, and then Steve's got some commentary on the markets where the storms were impacted the most. But in terms of written business, it was a pretty constant trend throughout the quarter. In July, we were down around 14%. It was around 15% in written business in August, and slightly over 16% in September. So the average was 15.3%, so fairly consistent throughout. On deliveries, we were down around 16% in July, around 18% in August, and then with that storm at the end, it kind of deferred some deliveries, so we were down around 25% in September for an average of 20.2% for the quarter. Overall, Steve gave a lot of commentary about the storms. From a financial impact, it was a very minimum impact in the third quarter. It impacted some deliveries, but not significant numbers and we'll make those up in the fourth quarter.

Yes. And Anthony, if you're looking at it from a regional or district standpoint, the Midwest and central districts have been outperforming; our other districts in Florida and the West have been a little bit underperforming in those areas. But obviously, we know that's our biggest concentration in Florida and Texas. So we're looking for those to bounce back certainly from the storm which has caused some disruptions there.

Yes, understood. In terms of the balance sheet, great job on reducing inventory and it was an excellent cash flow quarter. Do you believe you can continue to lower inventories, or are you at your limit? I realize you're adding stores, which will require some inventory increase. Overall, how should we view this?

I don't see inventories decreasing any further, Anthony. Some of it may have been affected by the port strike and the subsequent flow issues we've encountered. However, we are comfortable with our current situation, and while we anticipate fluctuations due to the new stores being opened, we don’t expect any significant changes. Our inventory levels are in a solid place right now, allowing us to maintain a healthy turnover and good flow of inventory. What we really need is more consistency. We have been facing disruptions at the ports, which have resulted in longer lead times. As those improve, we will achieve better continuity and consistency in our inventory flow.

Understood. And also, a few months ago you guys changed your media buyers. So just wondering if you could comment on that like as far as what you've seen so far and whether or not you plan to make any other changes to your marketing strategy?

We're very pleased with it. We've reported and you heard us talk about traffic improving. They started it in April, and we gradually started seeing a slow improvement in traffic, and we're really pleased with what we're seeing so far through the third quarter. So I think we'll continue to go forward with that and their plan, which is still the same thing. We're using digital, using broadcast and over-the-top, communicating social. So that's a big part of what we're doing and we continue that.

Understood. Well, thank you very much and best of luck.

Thanks, Anthony.

Thanks, Anthony.

Hi. Good morning. I wanted to ask about the traffic trend that you're seeing in October. Clarence, you mentioned that you've seen some improvement. Can you talk about what the delta has been? And is that translating into improved demand? Or is it still too early?

I think it's a little early, but it has improved. I mean we're seeing a little better traffic. It's not down as much. Recently, we've seen some improvement. We're not going to give you details on that. But we are encouraged with the recent feel of the customers coming in, the interest in our product, and the fact that it's less negative than it was before. Steve?

I think the customer is still a bit cautious and more deliberate due to the elections and high interest rates, but it’s encouraging to see traffic improving. Earlier this year, we mentioned that traffic was down significantly, but now, as we near the end of the third quarter, we’re seeing a decrease in the mid-single digits.

Cristina, I want to mention that we're excited about the new products we are introducing; they are performing very well. Steve indicated that we have managed our inventories effectively. Last week, we announced a significant improvement to our merchandise team by bringing in new talent. We all attended the furniture market together recently, where they are gaining insights. We welcomed Heidi Jones, who has 20 years of retail experience and is now a Vice President with us. We also promoted Alice Anderson, a talented internal candidate who has been with us for six years, to manage our Upholstery. Additionally, Valerie Naples joined us from Ballard's. We have fresh talent and have promoted others in that department, all under John Gill's leadership. We are optimistic about our current position and the new energy and talent we have on board, marking a substantial improvement to our team. We are encouraged by this progress.

Thank you for that color. I also wanted to ask around the big weekends Labor Day. I know you mentioned it was disappointing, but a little bit better than Memorial Day. So, maybe Steve, what's working, what's the consumer responding to? I noticed you did a little bit of a bigger financing offer. And what learnings will you take to the upcoming big selling periods?

Yes, Cristina, we haven't made any changes to our promotions. We feel confident in our current position and don't want to pursue aggressive discounting, as we don't believe that would be effective. Given the current housing situation and the election, we don't think that approach is advisable. Regarding credit offerings, we have strong options available for larger purchases, but we're not seeing the anticipated demand, which has led to increased credit costs. Richard, would you like to add some thoughts on this?

I was just going to add that our credit scores according to Synchrony are still very strong in the upper 700s. Our approval rates are still in-store upper 80s, low 90% and our delinquency rates are back to pre-pandemic levels. And our credit as a percent of sales is still a third. So, all those metrics are still strong in terms of the credit of our customer that's using Synchrony.

As traffic improves, I don’t think there will be an immediate impact. People go through a shopping process, and we are still seeing significant design sales. Our design business is a little over 34% of our overall business, which we are excited about. We are continuously seeing substantial sales from customers, and our goal is to be consistent and provide the right service to them, and we are committed to that.

And the last question I had was on the Houston market. How many stores do you think that market or how many Havertys stores can that market ultimately hold? How many can you have longer-term?

I’m not sure about our long-term plans, but we aim to have at least five stores to cover the marketplace, focusing on the outer perimeters and growth areas. It's a significant market. We have around eight or ten stores in Atlanta, which is unusual, but that's our initial goal for Houston.

Thank you.

There are no further questions. I would like to turn the floor over to Richard for closing remarks.

Well, we appreciate your participation in today's call, and before we conclude our call, Clarence Smith has a few closing remarks.

I want to recognize on this call the loss of one of our industry and investor legends who would always be on this call: Budd Bugatch. Bud was 40-plus years at Raymond James. I've traveled the investment world with him, learned a lot about it. He was an incredible advocate for the furniture industry. He loved retail and he loved merchandising. He was a former furniture retailer, and we had many lively debates and discussions; always interested. A brilliant man. We lost him way too quickly and way too early and we miss Budd, so just want to recognize that.

Thank you, Clarence. And we look forward to talking with each of you in the future when we release our fourth quarter results. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect.