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Greetings, and welcome to Haverty’s Third Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Richard Hare, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and good morning. During this conference call, 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 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 Burdette, will provide some additional commentary about our business.

Thank you for joining our third quarter conference call. Our net sales of $220.3 million were down 19.7% over last year with comparable store sales down 20.7%. Total written sales were down 11.5% and written comp-store sales declined 12.6%. These trends reflect the strong deliveries of backordered goods last year and the current difficult headwinds and the shift in consumer spending and housing declines related to elevated mortgage rates. Our Q3 delivered sales compared to Q3 of 2019 pre-COVID were up 5.3%. This quarter, our teams did a fine job in expense control, improving gross margins, managing inventories and executing high-quality service, which helped produce double-digit pretax margins of 10.4% or $22.9 million. Our growing design service with special order and custom upholstery continues to separate us from the more promotional players in the industry. Our relationships and partnerships throughout the industry, both domestic and international, have helped us develop terrific merchandise values, which we believe is gaining share in building our reputation as a top-quality home furnisher. Several of our merchandising team recently returned from the international home furnishings market in High Point, followed by a trip to visit our key case goods suppliers in Vietnam. John Gill, Executive Vice President of Merchandising led these trips and reports that while orders are significantly down in the factories in these factories, Haverty’s is moving exciting new collections through production to ship before Chinese New Year. I believe that our long-term relationships and partnerships are major strength across the industry. Our collection of outdoor products, a new category for our stores will be hitting the floors late this year and early next year in time for the key selling season. Several updated bedroom and dining room products are in the process of arriving early next year. Recently committed major upholstery collections have hit our floors and quickly moved up as best sellers. The recent acquisition of four Bed Bath & Beyond leases are on track for converting to Haverty stores in the first half of 2024. We’re in due diligence on several existing store opportunities in our regions and expect to be on track of our goal of five new stores per year in 2024 and 2025. The furniture industry is clearly in a recession directly related to higher interest and mortgage rates and the consumers move to travel and entertainment. We believe that these are times when our strong balance sheet, outstanding long-term supplier relationships and excellent new store opportunities aligned to set up real market share gains throughout our regions. We continue to focus on helping our customers’ vision of their home come to life. We’re in an excellent position throughout our regions to make that happen and grow our business. And now I would like to turn the call over to Steve Burdette, President.

Thank you, Clarence, and good morning. Our third quarter results were weaker than expected, fueled by weak Labor Day event proving to be slower than anticipated as our written sales were down roughly 16% from our record Labor Day event last year. Store traffic continues to be our biggest obstacle. However, we were pleased to see our overall ticket – average ticket rise low single digits, and our closing rate percentage remained basically flat for the quarter when compared to Q3 last year. Our supply chain network is continuing to experience no headwinds with production or shipping times from our vendors. Our inventories were down approximately 26% from Q3 last year. Our backlogs continue to remain consistent with pre-pandemic levels, and our inventories are balanced to the current business conditions. Our lead times from our vendors continue to help drive our special order business. For Q3, our special order business was up approximately 47% over last year and represents 33% of our upholstery business for the quarter. These increases have continued to be driven by our design business, which grew to 29% of our business for the quarter, with our designer average ticket growing just over 10%. Our focus is to continue to make sure that we are exposing all our customers to our complementary design services and increasing the number of customers that are engaging with our designers, which will help drive – continue to drive our average ticket higher. Our business partner continues to work with us as we are seeing improvements in our websites performance. Additionally, our more robust analytics have allowed us to make progress on our AB testing road map that is leading to more personalization and improved user experience. We continue to get good feedback from our sales and design teams on the new products that our merchandising teams are bringing to our stores. Extended financing continues to play an important part in our largest promotional holiday events each quarter as we manage these costs with rising interest rates. Distribution, home delivery and service are executing well, staying focused on getting it right the first time for our customers. Finally, I want to thank all of our team members throughout the company for all they do every day to help set Haverty’s apart from our competition. Now I’ll turn the call over to Richard.

Thank you, Steve. Looking at our income statement in the third quarter of 2023. Net sales were $220.3 million, a 19.7% decrease over the prior year quarter. Comparable store sales were down 20.7% over the prior year period. Our gross profit margin increased 370 basis points to 60.8% from 57.1% due to reductions in freight, the positive LIFO inventory adjustment and better pricing discipline. SG&A expenses decreased $11.8 million or 9.5% to $112.7 million. As a percent of sales, these costs approximated 51.1% of sales, up from 45.4% in the prior year quarter. We experienced decreased selling costs, advertising, distribution and transportation expenses during the quarter. Other income and expense in the third quarter of 2023 was negligible and interest income was approximately $1.7 million during the third quarter as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $9.7 million to $22.9 million. Our tax expense was $5.8 million during the third quarter of 2023, which resulted in an effective tax rate of 25.2%. The primary difference in the effective rate and statutory rate is due to state income taxes. Net income for the third quarter of 2023 was $17.2 million or $1.02 per diluted share on our common stock compared to net income of $24.6 million or $1.46 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the third quarter, our inventories were $102.3 million, which was down $16 million from December 31, 2022, balance and down $35 million versus Q3 2022 balance. At the end of the third quarter, our customer deposits were $46.3 million, which was down $1.7 million from December 31, 2022, and down $33.4 million versus the Q3 2022 balance. We ended the quarter with $134.3 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of the third quarter of 2023. Looking at some of our uses of cash flow, capital expenditures were $46.4 million for the first nine months of 2023. As a reminder, we repurchased our Florida distribution facility in the second quarter for $28.2 million. In addition, during the first nine months of 2023, we paid $14.3 million in quarterly dividends. During the third quarter, we purchased 104,221 shares of common stock under our existing buyback program for $3.2 million. We have approximately $16.8 million of existing authorization in our buyback program. Our earnings release list out 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 2023 to be between 60% and 60.2%. We anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes in our LIFO reserve. Our fixed and discretionary type SG&A expenses for 2023 are expected to be in the $286 million to $288 million range. The variable-type costs within SG&A for 2023 are expected to be in the range of 19.6% to 19.8%. Our planned CapEx for 2023 is $55 million, anticipated new or replacement stores, remodels and expansions account for $19 million. Investments in our distribution network are expected to be $33.5 million and investments in our information and technology are expected to be approximately $2.5 million. Our anticipated effective tax rate in 2023 is expected to be 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my financial commentary on the third quarter results. Operator, we would like to open up the call for questions at this time.

Thank you. [Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

Good morning, gentlemen, and thank you for taking my questions.

Good morning.

So as – good morning, yes. So I look actually the third quarter of written trends, they were actually down less than what you guys had in the second quarter. So I guess there was some sequential improvement there. I know you guys talked about Labor Day, but just wondering as far as the rest of the business throughout the quarter, how did that perform versus your expectations? And did you see any big change versus what you had thought about as far as business progression?

Anthony, good morning. This is Richard. Just in terms of our written business and cadence during the quarter, if you recall, in the second quarter, I believe we were down around 14.7%. In July, we were down a little slightly over 8% down. So there was a nice improvement there. And then in August and September, we kind of went back to the same range that we saw for the quarter in the second quarter overall. So we saw some slight improvement in July and then back to the 14.7% range in August and then slightly lower than that, but still double digits in September.

Okay. That’s helpful color, Richard. So – and do you know as far as like what drove that? Was there anything competitively happening in your marketplace? Or is it just macro headwinds?

I think it’s just macro. We haven’t seen anything dramatically different with any of our competition and wasn’t anything happening differently with us. So I think it’s just the overall mood of the market.

And as I commented, Richard, I mean, Anthony, about the Labor Day of that, that drove the August, September number, looking at it over a two-week promotional period. I mean, we were just – we were down more over that two weeks than we were outside of it for those two months, but it drove the overall on both of them. We were encouraged coming out of July with the single digits. But certainly, we were going against a record Labor Day last year. We had a fabulous promotional period last year at an all-time high. So we were down off of that, and that’s what’s contributed to the bigger decreases in August and September.

Okay. So it sounds like it was a tough comparison. Okay. And then Clarence, you mentioned outdoor furniture. Just wondering about the opportunity there as far as what we can see whether this – and also will this be in all stores or in just some stores? How should we think about that?

Well, I said it was a new category. It’s a new category because we dropped the last iteration of it several years back. We’re going to do it the right way this time. It will not be in all of our stores, but it will be in the ones that make the most sense for us and eventually probably all of our stores. So it will be a more limited program and there are some special order opportunities in it. I don’t see it as a significant part of our business. It could be a couple of percent, maybe 2% to 3%, ultimately. But I think it’s important, particularly for our special order custom design sales, which is now a bigger part of our business. Our customers want to have a whole home done, and this allows us to do that. So we’re excited about it.

Okay. Thanks, Clarence. And then last question for me before I pass it on to others. So your gross margin has certainly done very well. It’s had a nice tail end – tailwind, I’m sorry, from LIFO. So how should we think about the overall gross margins beyond this year?

Anthony, its Richard. That’s a great question. So this particular quarter, we had a pickup of around $2.3 million in the third quarter. Last year, it was an expense of about the same amount, $2.5 million. So the overall improvement in gross margins for the quarter in terms of a merchandise margins, freight and product discipline, that was about 45% of the increase. 55% of it is LIFO. We expect that to continue for the remainder of this year. We’re still forecasting next year, and we’ll release our – on the fourth quarter call, we’ll give guidance for gross margins for 2024.

Got you. Okay. Well, thank you very and best of luck.

Thanks, Anthony.

Our next question comes from the line of Michael Legg with The Benchmark Company. Please proceed with your question.

Thanks. Good morning, everyone. Congrats on the nice quarter. Can you talk – just a couple of quick questions? One, from a competition perspective, what you’re seeing from a promotional perspective in your regions and how that’s playing out. Second, your design initiatives obviously are doing well. Can you talk about any opportunity to expand that? How many designers do you have in each store? Is that something you’re looking to expand? And then just on the outdoor furniture, what’s that margin profile like compared to the rest of the company products? Thanks.

Okay. So – Mike, this is Steve. So from a competitive standpoint, I would say activity certainly has picked back up. People are – have seen probably a little more conservative approach to the financing. People are looking at that because of the rising cost and what goes on there. But obviously, you’re still seeing the activity around the holiday events. And from the promotional players you’re seeing maybe increased activity at those levels as well. But really no real change overall from discounts or anything like that, that they’re offering. Those have been pretty consistent. From a designer opportunity, I think we have certainly opportunity to grow that. We average right now about one designer per showroom. And our opportunity is to look at how can we increase that to get seven-day coverage and what does that look like. And we're doing some experimentations of adding either a designer to additional stores where it makes sense to make sure we got that coverage in our bigger showrooms and then we'll continue to see how we can expand that out. So I do think we'll increase that number as we go forward into 2024, so that we can have that coverage in our bigger stores. So we probably could push toward 1.5 per showroom on average as you go forward into 2024. And then as far as the margins on the outdoor furniture, I don't anticipate it to be any different than our regular margins that we get and attending. So it won't be a hindrance on our margins, and it won't be a plus. It will be in line with all other merchandise. I hope that answers your questions.

Yes. Thanks. And then just a follow-up on the designer piece; when you look at that – is there an opportunity to get higher scale furniture with that? I mean it's almost like you're getting into a different category of custom designing. And does that change the price point at maybe the high end of furniture you may start to carry longer term?

We are carrying – we do have access and have more products available to our designers that are special order that they have access to. Our sales consultants do as well. We think that's an important piece to fill in, and that is on the better end side of the product line that we see. But I do think our opportunity there is getting into the home. And so if we can get into the home, we will see our average tickets continue to increase. We know that, that is the largest average ticket is when we get to the home. If we involve designer in the showroom, we know that that's obviously increased about 50% from where it is on average for the company. We're running about 3,300 now. So there is opportunity to grow it, and it is an opportunity we're looking at better products, not necessarily that we'll bring into the lineup, but that we can access the special order to be able to meet their needs.

Great. Thanks and congratulations.

Thank you.

Yes, Cristina, I definitely do. I think we can continue to increase that. Is it going to be at the same rate we did over the – from 2019 as we came out now? So obviously, I think it will stay in that low single-digits, but I think the opportunity lies with our designer and us continuing to increase and drive that. I talk about it, the number of customers. We're really focused on trying to engage more of our customers. And so we're seeing that increase, and I think we still have a lot of legroom there to go and opportunities. So yes, we have seen maybe with some smaller tickets that drove a little bit of that decrease that you saw, you're looking at being in the 2% range, but we're not. We see it long-term as an opportunity for us to continue to grow, but it will be in the low single-digit range.

Thank you.

Thanks Clarence.

Our next question comes from the line of Budd Bugatch with Water Tower Research. Please proceed with your question.

Good morning and thanks for taking my question. Good morning, Clarence, Steve and Richard. Congratulations on the profit performance involve this quarter, very impressive.

Welcome back Budd. It's been a long time.

Thank you. Thank you. Thank you, Clarence. Good to be back. The questions I have primarily relate to the sales impact, and you all have got a wide swap in stores and talked to a lot of consumers in the stores as you visit the stores. And we've had that – and Clarence you noted the twin effects of movement from focusing on the home, which we saw during COVID and then the higher interest rates, the kind of a double whammy to industry demand right now. I wonder if you – as you talk to consumers, are you seeing that change. It seems like we watch this diversion to services away from the home now for maybe three to five quarters or so. Are you seeing that come to an end? Do you sense that as you talk to consumers in the stores?

Well, Steve and I have been with the industry players, and we're listening to what's happening out there. It's certainly an impact. And I don't see a clear ending to it. Some of the terms we've heard is the second half of next year; it might start to get better. That's probably as good as I can give you as far as what we anticipate. I mean we're in a tough situation now for the industry. And those who have debt and need to refinance will be – will have issues. And there are going to be opportunities for us. So we're prepared to take advantage of converting existing boxes to [indiscernible]. We're very good at that, and that's what we're looking at. So it is a tough time, and I don't see a clear ending to it, but I would think late next year should be better.

And Steve, are you seeing any change in the cycle times of when customers start the process and particularly thinking of design customers, they begin and you go through a process, as the sales cycle at all changed? And can you...

Budd, on that side of it – yes, from a designer standpoint, it hasn't changed. I mean it's still the same. I mean, if somebody is either moving, they're redoing a home, and that's been part of the process. What may have sped it up is our availability of product. We can get it quicker and provide it quicker to them, where a year ago, two years ago we were struggling with that. And so that stretched it out because of us. Now it's because it's where the consumer is, and so we're able to meet them. So I'd say, from that standpoint, it has condensed because of the consumers. We're able to deliver the product quicker to the consumer based on their needs. But overall, I'd say the cycle is still the same. We can deliver quickly on in-stock product. We still deliver within less than a week, and in some cases, within two to three days. It just depends on the area we're going to when that market – when that's available.

That's always been a strength of Haverty. And you have a number of different regions. Are you seeing any geographical changes between, or differences between the regions in terms of comps and order comps?

We really aren't, Budd, I mean, it's pretty much across the board – in the – across all the districts. We've got seven districts and they're all equally down within a percentage or two to reach out. So there's no real difference there.

Okay. And the quarter ending backlog versus the quarter beginning backlog, can you comment if there are much change in that? I know you had less – the orders were down, less than delivery. So that would say that backlog probably grew during the quarter. Is that a good way to look at it?

Hey, Budd its Richard. I'd say the backlog number in the last quarter and in the quarter – in the third quarter is basically flat. And our customer deposit number at the end of the third quarter versus at the end of the second quarter is basically flat as well. So we're kind of at a – we're back to the old backlog. We're delivering what the orders that we take in.

And you haven't made any changes, I'm sorry...

Go ahead, Clarence.

What is you kill [ph] again, Budd.

Got you. I know that brings Clarence, so we're – in our industry, we're very familiar with that phrase. The issue that you've mentioned and I think it's very accurate. You're a strong player with your suppliers and the suppliers have got to be hurting maybe even worse than the customers are – than their customers are. And you have some opportunity there. What are you hearing from them? And you talked about some of the new collections coming in. Obviously, you're not going to take advantage of them, but that doesn't mean that you don't get great new product and great new pricing.

I mentioned John Gill in Vietnam last week, and he told me that a number of our key suppliers who are the best players in the industry, are down anywhere from 30% to 50% and they're all looking for orders. So, I mean, we're not worried about these guys failing or anything like that, but it is hitting the manufacturers, I think, more dramatically than the retailers right now, and that all catches up. So everything was on hold last year. I mean it took us sometimes up to nine months to get product, and now it's down to normal or even shorter. So a number of vendors are hurting, but I think our suppliers, we feel very good about. And the partnership there are strong, and they come to us and give us great values, and we appreciate that.

Okay. And you did mention you were bringing in some leather from China. Are there any geopolitical issues that are going on that might worry you with China? Because the country has got its own issues, but...

We used to do almost everything from China now only basically better in leather. They're very good suppliers. We like them. We do. It does make you so uncomfortable with what's happening, but they're able to work through it, and we're getting the product and we're good partners. So they still, with even the tariff on top of them, are offering better quality product than we're getting elsewhere. But you certainly have to look at moving into other places like Vietnam or even Cambodia, things like that. We're looking at all of that. But right now, we have some very strong players in China that we're still doing good business with.

And much of the leather in China, as I recall was being imported from Italy and actually tanned either in Italy, also in China because of their environmental [indiscernible]. Is it still coming from Italy? I'm sorry.

It does. It comes from the U.S. too and South America. But that's where mostly – anywhere.

Yes. Okay. And last for me, I'm always curious beginning to the outdoor furniture business. When I was in the retail business, it was the product category; both hated and loved the most because of the seasonality and the differences. So you said you're going to do what right this time. Can you maybe give us a feeling of what you meant by that? And what was different at this time over last time?

Its fewer collections, it's only two or three collections that we'll have available, and then we do the rest of it through suppliers who do it as a third-party arrangement. And we won't roll it out everywhere. We'll only – we'll start where we know it's going to do the best and expand it from there. And these suppliers are very good at it. We're just going to be more controlled, more focused, more strategic.

And Haverty's branded, that's an area where there are brands in outdoor. Is it Haverty's branded or is it national branded?

Oh, no. It will be Haverty's branded product.

Okay. And what about accessories like fire pits and the other stuff that you're [indiscernible] with that category.

We've some of that, but it will still be Haverty's branded.

Good luck on it. Are you interested to see it in the stores? When does it hit? When does it get into the stores...

It starts arriving in December and then January.

Okay. Great. Thank you and good luck over next quarter and the year. Thank you

Thank you, Budd.

Thank you, Budd.

There are no further questions in the queue. I'd like to hand the call back to Mr. Hare for closing remarks.