Dennis Fink - Chairman, Executive Vice President and Chief Financial Officer Clarence Smith - President and Chief Executive Officer.

Todd Schwartzman - Sidoti & Company Brad Thomas - KeyBanc Capital Markets Kristine Koerber - Barrington Research Associates.

Good day and welcome to the Haverty’s First Quarter and 2015 Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Dennis Fink, Executive Vice President and Chief Financial Officer. Please go ahead sir..

Good morning everyone. During this conference, we’ll make forward making statement, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise.

Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the Company’s reports filed with the SEC. Our President, CEO and Chairman, Clarence Smith will now give you an update..

Thank you, Dennis. Good morning. Thank you for joining our First Quarter 2015 conference call.

Earnings before interest and income taxes for Q1 were $10.4 million, slightly higher than last year’s $10.2 million, total net sales increased 5.3% largely from our growing average ticket, the key sales driver for several years as well as an improved closing rate in our stores.

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

We continue to build our free H design decorating service in our stores and that has been a significant part of driving the larger average ticket.

We are strengthening the design, service and more markets with over a 100 designers and have broader and improved product lines as well as faster shipping to our customers on our customized upholstery programs. By the end of this year we will have 95 H design planning centers in our stores.

New digital tools such as the greatly improved 3D room planner has aided in demonstrating our team skills and separated us from our competitors.

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

As we have previously discussed, the west coast port slow down has affected our ability to deliver this year but we are seeing improvement and expect that we should be in a better in stock position and reduce our sales backlog by the end of the quarter.

Upholstery sales continue to be the most important category with special order and customer upholstery increasing 11.1%. We have seen a nice sales and increase across the case goods line up let by double digit increase in dining sales.

Our strength in accessory program is also having double digit increases and is certainly helping our decorators complete the desired look in our customer’s home. We opened a new store in Rogers Arkansas this quarter and expect to open a new store in Wako later this month, our 23rd store in Texas.

Late this summer, we will open our 38th store in Fort Lauderdale, after extensive remodeling of a former furniture location. That store will strengthen our position in southeast Florida which has been a priority market for us for several years.

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

We expect to end the year with about 3.2% retail square footage growth and 122 stores. Our 2015 CapEx plan above over $32 million is heavily weighted to new stores and major store remodeling projects. We have been very heavily in improving our website and mobile accessibility.

Recent stat shows that 60% of our customers access us on mobile devices and we realize that our mobile site must be state-of-the-art to properly appeal to our customers. Our new enhanced website should be up this summer. We’re gearing up for the important Memorial Day sales event which is the high order market in the second quarter.

We are very well positioned in our markets and should have a strong inventory supply to support deliveries to our customer with this important event and at the end to the summer month. I’ll now turn the call back over to Dennis Fink.

Thank you, Clarence. The first quarter earnings press release last night covered the financial highlights and I’ll touch on a few of those points now before we open up the call for your questions. As a reminder, we customarily give guidance for expected gross margins and SG&A expenses for the current year within each of our earnings releases.

We don’t publicize any sales forecast but do announce our actual sales within a few days after each quarter end. And we also disclose how sales for the new quarter to-date are trending when we announced quarterly earnings as we did last night.

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

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

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

We now planned for four store openings in 2015 and when it closing late in the year there was one of the new locations we were working on and still are and it will likely open next year 2016.

The weighted average retail square footage is expected to increase by about 3.3% for the full year and that’s about 2.6% for the first half and about 3.9% for the second half averaging for the year to 3.3%. Our inventory increased during Q4 and we held that level through the end of the first quarter.

We want to have faster delivery fulfillment to customers going forward and be a little less susceptible to lead time fluctuations caused by the availability of slots and containerships, labor issues in ports and other events that are out of our control.

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

One fact just to point out the, for purposes earnings per share calculation, the common stock, weighted average, diluted shares outstanding for the quarter were 22,977,000. Operator that’s all I’ve got for now. Let’s turn it over for questions..

[Operator Instructions] We’ll take our first question from Todd Schwartzman with Sidoti & Company..

I wanted to focus on some of the, alright actually the two new markets, the recent one that you entered in Rogers and also upcoming in Waco.

Clarence, if you could talk a little bit about merchandising mix and also just maybe kind of touch on what you’ve may learned at this early juncture, in Arkansas, if you just kind of talk about how the product assortment differs or is similar to some of your other markets especially maybe the similarities or differences between Waco and the DFW market?.

I don’t think there is going to be much difference between Waco, I mean it’s only, an hour and half from Dallas, it certainly Texas, we understand Texas, we’ve got plenty of stores there.

We really just filing in markets to something that an area that we really understand and Rogers is only been opened a week or so we don’t expect that to be any different than Texas or mid south mix which of kind of the heart of our core line up.

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

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

Well, Waco and Rogers are not of the same higher income as the best of our higher -- larger markets like Dallas, Atlanta, Washington type of thing.

But we understand these middle markets, we’ve been in the middle markets for over 100 years in these regions, we know them quite well, the demographics there are pretty good for our customer mix, we study that pretty closely before we ever go in. We feel good about our estimates in those markets and I think they both will be very successful.

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

Got it.

And on the gross margin guidance that’s still stable at 53.3 I think it’s for the full year?.

Yes. .

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

It’s a little better than we had guided and still a lot of it is determined by the timing of product turnover and close outs and also completion of course and then finally the inflation that we have for the full year which we didn’t expected to be much but that’s all what we saw, since in our LIFO that always is something we don’t get a real good read-on until further into the year..

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

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

[Operator instruction] We’ll take our next question from Brad Thomas with KeyBanc Capital Markets. .

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

Well the word cadence is a good one, part of it is the advertising patents or the win replacement of the advertising is and it is probably a little heavier weighted towards the end of the second quarter and you’re right about prior years, two years ago we had a super strong April, last year adjusting per each store was good and it wasn’t really outside of our expectation the performance in April but we would hope to see better percentage increases we go into the quarter, we’ll find out along with you.

.

Great, and then geographically, anything that you’d call out in the quarter or more recently?.

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

But we're saying about what we expected across the regions..

Great. On the expenses Dennis, I think the variable is going to be up slightly from the prior guidance.

Is that a function of the sales cadence or will you be spending a little bit more, what's the reason for the change?.

Yes, we did spend more and we have expanded our sales staff both for the new stores that are opened and that are coming up. Wake and Rogers are both new markets for us. So they require hiring sales staff ahead of time in going through some training, bringing in some people. There is more of that that was happening in the first quarter than typical.

And we did also add some sales people just for some stores we thought were understaffed. The designers are expensive or an extra expense for us. It's free service and it does help grow sales in average ticket, but that was part of it.

We have a little more expense in credit promotions and there was some of the West Coast issues with this sporadic, I guess the sporadic receipt of [ph] goods during the quarter increased our cost somewhat a verbal cost in distribution and in delivery. So I think that we will see the second half we should see some efficiencies.

It won't show up till then, it will still be tough in the second quarter..

We'll take our next question from Kristine Koerber with Barrington Research Associates..

Good morning.

First, can you just talk about the competition in the Dallas market and have you seen any impact so far from the large competitors that’s moved in there?.

Well, yes. Nebraska has opened up there. They’ve opened up in March, soft opening I guess they'd call it that. I would say it's not unlike what we're expected. We're trying to separate ourselves provide a better service build relationship with our customers. We have exclusive product. I'd say it's what we expected and we of course watch it closely.

We, for several years, have repositioned our stores to be serving the entire Dallas Fort Worth market well. So nothing unexpected. .

Okay, that’s helpful.

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

Well it is higher.

Dennis, you want to comment on that?.

Yes we usually don’t give that out. It’s definitely higher. You can see our customer deposits are up and it's higher than a year ago. Some of it’s similar to where we were at year end. It turns out higher than the prior year. .

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

Yes, we hope to deliver out more this quarter percentage wise than our written sales, although if written sales were fantastic, that’s fine too. But the -- at a normal basis you would think we catch up somewhat in this quarter and ensure better deliveries..

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

It's tough to give specifics to that. It definitely impacted us and as Dennis mentioned above the -- some of the expenses, when it does come in it all comes in at one time. So there has been a lot of surges. Its cost us to have to add overtime and that type of thing and bring in the product in and when it does come in.

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

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

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

Okay, thanks and then, with regard to your outdoor furniture category that you're having in the Florida stores, it's going to be in various stores in Florida, and how is it doing thus far on the Coconut Creek Store?.

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

It's a beautiful program. You can see it online later this week. And it is for the coastal stores starting specifically in Florida, and more intensely in South Florida. And then it is available through some of the coastal stores and markets in the Atlantic Coast region.

But it's a role out in process, and the one that we are optimistic and excited about..

Okay great, and then just lastly, is a promotional environment -- is that -- is there been any changes there -- that has gotten any more intense?.

I don't see anything that significantly different this year than last year.

Now as you will know we are coming up to the most important holiday of the first half, and that's Memorial Day, and everybody throws a lot of money at that event which I think is not bigger for everybody, but that will be when you see most of the promotion and see how intense people are about it. We think we'll be very competitive.

We are excited about our new marketing plan and program which just the new television commercials just roll out next week and we're excited about that. We are very product specific. We are promotional on particularly categories that are sensitive like mattresses, but we have our own specific products.

So we want to make sure people know what we have and the values there..

[Operator Instructions] We'll take our next question from Budd Bugatch with Raymond James..

This is David on for Budd. I was wondering if you could just comment on the performance of the Buckhead Style Studio, since it's been open maybe give us how that store has been performing versus the rest of the portfolio.

And any plans to try a format like that in another market?.

We don't have any plans now to do anything David, though like that in another market. So it's a test for us. I would say it's like we expected.

It's not going to change the way we open our stores to the market and we're going to use a number of the display techniques in the new stores we are opening which we are excited about, certainly the emphasis on special ordering custom that you see when you walk in there. That has been a very big part of the business.

There is more design business down there. So it's really about as we expected. And it's specific to this market and it's unique to this market. There are not many places in the regions we serve that would require us or we would want to open up something different like that.

But we are going to look at it closely and it could happen in some of the denser markets, but I don't see any plan now to roll out more of these specific style studios..

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

Well, I mentioned in my comments that we’re pleased with the case goods program that’s come back now that we’ve better stock specifically dining room has been good, accessories have been very good and continue to be and as we mentioned in a upholstery special order is the driver there.

So, the encouraging different trend that we’re seeing is the improvement in our case goods program. And that really being better in stock..

Okay, so better in stock, these goods product that are doing well, are they different styles than what you have had before and now that you’ve gone to exclusive product designs for heavily or is it a similar style of product as you were kind of [indiscernible] for?.

We had a lot new collections coming last year and year this quarter or early the first quarter which are selling well, our new products coming in well and we’re very pleased with most of that and we have some issues and being add of stock on some of the better sellers because they came in stronger than we thought they were going to and we will get back and start by the end of this quarter.

So, we’re pleased with the program and are adjusting where we think we need to. .

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

We wish we’re trying to make that happen, I think we a little more expensive set up right now and you’d hope that it drives sales more but there is a little more variable cost component. So, I think that we’re probably looking at little higher number. I think we can improve certainly where it is this year.

But I think just the model is slightly different. .

Alright, best of luck going forward. Thanks a lot. .

Thank you, David. Thank you. .

There are no further questions in the queue at this time. I’d like to turn the conference back to Dennis Fink for any closing or additional remarks. .

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

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