Good day, and welcome to the HVT's First Quarter 2021 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Hare, Chief Financial Officer. Please go ahead..

Thank you, operator. During this conference call, we'll make forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise.

Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the Securities and Exchange Commission..

Good morning. Thank you for joining our 2021 first quarter conference call. We're very pleased with the results of the first quarter and I'm encouraged with the continuing momentum that we're seeing with increased written sales, higher traffic and higher closing rates and average tickets.

Even though our undelivered backlog is up almost four times last year, our current incoming orders are continuing at the elevated pace we have seen since January. We have not seen a slowing of orders or significantly higher cancellation rates even with the longer wait times for furniture.

While we do not know how long we will see these dramatic increases in incoming orders, we believe that the importance and the value of the home has risen dramatically in the past year.

We believe this trend will continue for 2021 because of the large backlog of orders, the very strong housing market, the government cash subsidies and the increased demand for furniture and other home-related products. We also believe that the elevated importance of home is a longer-term sustainable trend in America.

Our supply merchandising and distribution teams have been tirelessly working with our suppliers and shippers to bring in the product to fill orders and reduce our record backlog. The delays in shipping challenges are well-known now, but they are well beyond anything that our industry has experienced.

We're planning to increase our inventories as the production and product flow improves and are investing in additional warehouse capacities in our distribution network. We opened a new store in Myrtle Beach, South Carolina this past quarter and are excited to open a design-oriented store in the villages in Central Florida this summer.

We expect to open a third store in Northeast Austin, Texas later this year. We believe there are a number of good additional markets that we can serve within our distribution footprint and are actively investigating and pursuing new store opportunities.

We're very excited about the rollout of a major new multimedia marketing campaign in May, which we believe will more clearly separate Havertys from our competitors and raise the bar on service, quality furniture and design. We'll be sharing more on the campaign early next month. I'd now like to turn the call over to our President, Steve Burdette..

Thank you, Clarence, and good morning. I'd like to provide an update on our operations during the quarter, specifically, our supply chain efforts as well as our distribution, home delivery and service areas.

Our supply chain team faced many headwinds during the first quarter, which included availability of container capacity, as we approached Chinese New Year with difficult. Container freight costs were unreliable, as we faced pricing surcharges due to scarcity.

We experienced port delays, especially at LA on some of our inbound product of up to three weeks. February's winter storm impact to our Dallas distribution center caused us to close receiving operations for one week.

The same storm impacted two of the main chemical manufacturers for our foam suppliers, which caused our upholstery and bedding vendors to see further delays in their production. And finally, the Suez Canal situation caused some additional delays for products arriving in the early part of the second quarter.

Even with all these headwinds, we were able to receive approximately 10% more product in Q1 versus Q4. We expect that we will be able to match or exceed the same flow of product in Q2. We are still experiencing some delays with container availability in the early part of Q2.

However, we have been able to secure our new contracts with our freight carriers, which will bring stability to our freight cost. Also, the flow of foam should resume back to normal production by the middle of May, which will be a big lift to the domestic production for upholstery and bedding in the back half of the quarter.

Our distribution, home delivery and service teams did a masterful job adjusting to the headwinds we faced within the quarter. We had to close deliveries for all stores serviced by our DC in Dallas and our cross docks in Memphis and Cincinnati for one week due to the same winter storm in February.

Our delivery schedules resumed back to normal the week after the storm. Staffing remains our number one concern in this area. Extended unemployment benefits until September, along with the stimulus checks being distributed in December and March, have made it difficult to attract and retain talent in our warehouses and home delivery.

This challenge is not unique to our company, as it is a challenge for many industries in this economy. Overall, I'm very pleased with the results of our operations in the first quarter of this year. I appreciate the efforts of the entire Havertys' team as well as our vendor partners that made it happen..

Thank you, Steve. Looking at our financial results for the quarter, in the first quarter of 2021, delivered sales were $236.5 million, a 31.8% increase over the prior year quarter. If you recall, our retail operations were closed in the last two weeks of the first quarter of 2020 due to the COVID-19 pandemic.

Total written sales for the first quarter of 2020 were up 54.5% over the prior year period. Comparable store sales were up 11.5% over the prior year period. This includes stores that were open for a full month in both periods, so March is excluded.

Our gross profit margin increased 160 basis points from 55.5% to 57.1% due to better merchandising, price and mix and less promotional activity during the quarter. These improvements were partially offset by an increase in our LIFO reserve, as we continue to see increased freight and product costs.

Selling, general and administrative expenses increased $12.2 million or 12.5% to $109.8 million, primarily due to increased sales activity. However, as a percentage of sales, these costs declined 800 basis points to 46.4% from 54.4%. As demonstrated in the past two quarters, our financial model has substantial operating leverage at these sales levels.

Income before income tax has increased $23.1 million to $25.4 million. Our tax expense was $6 million in the first quarter of 2021, which resulted in an effective tax rate of 23.5%. The primary difference in the effective rate and the statutory rate is due to the state income taxes and the tax benefit from vested stock awards.

Net income for the first quarter of 2021 was $19.4 million or $1.04 per diluted share on our common stock compared to net income of $1.8 million or $0.09 per share in the comparable quarter of last year. Now looking at our balance sheet.

At the end of the first quarter, our inventories were $103.6 million, which was up $13.7 million over the December 31, 2020 balance and down $6.9 million versus the first quarter of last year's balance.

At the end of the first quarter, our customer deposits were $104.7 million, which was up $18.5 million from the December 31, 2020 balance and up $78.6 million versus the Q1 2020 balance. We ended the quarter with $210 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of the first quarter of 2021.

Looking at some of the uses of our cash flow. CapEx for the quarter was $4.7 million and we also paid $4 million of dividends during the first quarter of 2021. During the first quarter, we did not purchase any common shares in our buyback program. We currently have $16.8 million remaining under authorization for this program..

We'll take our first question from Anthony Lebiedzinski with Sidoti & Company..

Good morning and thank you for taking the questions. So certainly, a very impressive performance, both top and bottom line in the quarter here.

Just wondering, even with the - you called out obviously the winter storm impact, any idea as to how much in terms of revenue impact that was on the quarter in terms of the winter storm? I'm just trying to get a sense as if that didn't happen, what would revenue perhaps be..

Yes, that would be speculating, Anthony, if we were to do that because it happened on President's Day itself and then the week after that. We did our sales. We were able to open stores back as far for the retail business but deliveries were where we really were impacted and receiving on the distribution side.

We lost some business from President's Day, but I'll tell you, our business has been so strong. At this point, I don't know that it impacted the total quarter, as a whole..

Okay. Yeah. Thanks for that Steve.

So, as far as your product segments, just wondering where are you seeing the biggest sales increases when you look at the different product areas that you sell?.

The interesting - in this past quarter, our case goods have been the strongest category, bedroom, dining room, occasional. Upholstery is still the driver but the big increases were in case goods. And I think part of that was because we had the product. We were able to deliver and it was flowing in.

But it's great to see those categories because historically, we've been strong in case goods and I think that's starting to come through..

And Clarence, just to piggyback off of that, as a percentage of sales, we were at 34.6% last year in case goods in the quarter, and it went up to 37.6% during the first quarter of this year..

Okay. Yes. Thank you for that, and then just last question for me here.

So, looking at the different supply chain constraints that are out there, which have been certainly well publicized, for you guys specifically, where are you guys seeing the greatest pressure points in terms of the supply chain?.

Anthony, this is Steve. I would tell you, certainly, our vendors are having the same hurdles that we are hiring people and being able to have staff and be able to handle the production at the volume that we're right in the business right now to keep up with that pace. First quarter was impacted, as we said, with the winter storm.

The upholstery side of the business got hurt more because of that because of the foam supply that got pushed out, and that had certainly an impact on that.

But as we still deal with the container capacity, I think that's still going to be an issue for us as we move through the quarter and into the third quarter, but hopefully, that will resolve itself, as we move toward the end of the year and toward fourth quarter, but we do expect that to be because of the increased demand that's out there.

And then from our side here, in our world, it is staffing that I told you about in distribution, that's what we're focused on. That would be our biggest thing. We've got the orders out. Our supply chain team has them out with the vendors. And we're programmed out for six months on orders to have the flow coming in to be able to meet the demand..

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

Clarence H. Smith:.

We'll take our next question from Brad Thomas with KeyBanc..

Hi, good morning. Congrats on the great quarter here. My first question was just around modeling sales. I just wanted to make sure I'm understanding some of this right. Really impressive sales growth over 30%.

As we look at the trend in written orders and delivered same-store sales, those have typically been running up in the kind of 10% to 20% range and north of 20% the last few months, I think.

Is the reason where you're able to get to that 30% growth rate for total revenues just because March was turning into such an easy comparison when you had closed stores last year? Is that mathematically how that works?.

For the most part, it is, yeah. And then just take a look at how the performance in the fourth quarter and the first quarter, we don't give revenue guidance, but Clarence talked about the position of our backlog.

Steve talked about how much more production or orders we got - product flow we got in the first quarter over last quarter, and that could probably - just probably is as good as we can do in terms of forecasting for you..

Yeah, and we were closed in the last two weeks of March. So - and that was not only for stores, but for delivery, too. So I think that was the big jump, but we're seeing incoming orders consistent. So we feel pretty good about that..

Yes. No, just a really impressive revenue number. And so as we think about 2Q, historically, Havertys has often had 2Q seasonally come in with revenues not too far off from 1Q and you're obviously sitting in a fantastic position from a backlog perspective, it looks like your customer deposits are the highest in company history.

The written orders have obviously been very strong.

As we think about maybe the dollar value of sales that you might be able to generate in 2Q, assuming that demand holds up, is there any reason you couldn't deliver sales something in the neighborhood of generally of what you did here in 1Q?.

Brad, we really don't give out revenue guidance. I mean, again, I'd go back and look at - I think the thought process is going back and looking at how we did in the first quarter.

And the message that Clarence and Steve gave on our backlog and on our receipts, there's probably - yeah, you're heading in the right direction, but we can't really firm that up for you..

Great. And then just the last one, if I could.

I'd be curious, just what you hear from customers and what you hear out of the field in terms of maybe how consumer spending is evolving, how sustainable you think this all can be and if what the customer is buying from you is changing at all, probably?.

Well, I mentioned the case goods are coming up, but it's across the board. I think the weakest growth has been in mattresses and some of that, I think, was because of the supply issues. We feel good about what people believe in for furniture in their home. And we also like where we are.

I mean, our biggest states are Florida, Texas, Georgia, Virginia, but particularly Florida and Texas and the growth there is strong. I don't see that slowing down. Housing is good. So we feel pretty good about where we are and the fact that home and the house is important, and that's what we do..

That's great. Thank you so much and congrats and good luck keeping up the momentum here..

Thank you, Brad..

Thanks, Brad..

That concludes today's question-and-answer session. At this time, I will turn the conference back over to Mr. Richard Hare, Chief Financial Officer, for additional or closing remarks..

Well, we appreciate your participation in today's call, and we certainly look forward to talking with you in the future when we release our second quarter results. Have a good day..

This concludes today's call. Thank you for your participation. You may now disconnect..