Reports Operating Results for Third Quarter 2026 - HAVERTY FURNITURE COMPANIES INC

Financial Performance:

• Net sales reached $203.2 million, representing a 4.5% year-over-year increase, with comparable store sales up 4.1%.
• Gross profit margin expanded to 62.3% (up 200 bps YoY); excluding $3.2M in tariff refunds, margin was 60.7%.
• Net income was $6.3 million ($0.39 per diluted share), compared to $4.7 million ($0.28 per share) in the prior year; excluding tariff refunds, net income was $4.0 million ($0.25 per share).
• SG&A expenses increased 6% to $119.0 million, driven by higher commissions, third-party credit costs, stock-based compensation ($2M+ acceleration), and rising health insurance premiums.
• Inventory decreased significantly to $86.7 million from $100.5 million in Q2, though management notes this "pendulum swing" may result in year-end inventory between $90M-$100M to meet delivery expectations.
• Customer deposits rose to $46.2 million (up $10.7M YoY), while the company ended with $120.3 million in cash and cash equivalents.
• The company maintains no funded debt, holds a $100 million revolving credit facility, and has $16.8 million remaining on its $30M buyback authorization.
• Capital expenditures for the first nine months totaled $23 million, with $15.8 million in dividends paid YTD.

Guidance and Future Outlook:

• Full-year 2026 gross margin guidance raised to 61.3%-61.5% due to anticipated tariff refunds; previously lower guidance was adjusted for current tariff structures.
• Fixed and discretionary SG&A for 2027 is projected at $307M-$309M; preferable SG&A is guided at 19.2%-19.4% of sales due to higher fuel and credit costs.
• Capital expenditure plan for 2027 remains at $34 million, allocated toward store openings/remodels ($27.7M), distribution network ($3.2M), and IT ($3M).
• Expected to end 2026 with 133 stores; planning to open 5 new locations and close/relocate 1 in Q4.
• Management anticipates strong Q4 performance with aggressive marketing post-midterm elections, targeting growth categories like upholstery and mattresses.
• Long-term strategy focuses on expanding the designer program (currently ~17% participation) to drive higher average tickets.

Business Segments and Product Lines:

• Designer business grew 4% to account for 34.6% of sales, with average tickets up 7.2%; management aims to increase participation to ~25%.
• Custom orders within the upholstery segment surged 16.9%, now representing 31.4% of upholstery sales.
• Written sales performance: Upholstery and occasional/bedroom/dining up mid- to low-single digits; mattresses and decor declined low-single digits.
• E-commerce written sales showed double-digit organic growth, driven by improved site traffic and AI integration in customer sales and design interfaces.
• Store expansion: Added 5 new stores (including Fredericksburg, VA, and 5 in Texas) with 1 relocation (Pittsburgh) and 1 closure (College Station, TX) in Q3; aiming for 18 states by end of Q4.
• Refresh of mattress departments and design centers is on track for completion in all stores by 2027.

Market and Competitive Landscape:

• Midterm elections in key markets (FL, TX, GA, NC, SC) created marketing disruptions and consumer anxiety in Q3; management views this as a resolved headwind.
• Competitor landscape: Company emphasizes "unmatched value" through design and service execution to differentiate from competitors.
• Consumer health remains robust, with credit approval rates above 750 FICO scores exceeding 9% for in-store financing.
• Industry-wide challenges include container availability issues, labor shortages in Vietnam, and potential regulatory changes affecting supply chains.

Risks and Challenges:

• Tariff volatility: Monitoring potential increases in Section 301 tariffs on wood furniture and Section 232 tariffs on upholstered furniture, with a deadline decision expected for Jan 2027.
• Supply chain disruptions: Rising lead times due to customs inspections, border protections, and Vietnam labor availability; mandatory 7% wage hike in Vietnam effective Jan 1, 2027.
• Cost inflation: High bunker fuel rates (25-30% container rate increase), diesel at ~$6/gallon, LIFO expenses, and rising health insurance costs are pressuring margins.
• Credit risk: Increasing costs associated with third-party credit usage and higher interest rates; company is tightening controls on no-interest promotions.
• Inventory management: Recent aggressive inventory reduction risks potential stockouts if product flow slows.

Management Commentary and Tone:

• Tone is optimistic and confident, stating the team has "turned the page" on the midterm election headwinds.
• Management expressed determination to out-serve competitors and highlighted four pillars of optimism: people, design program, organic store growth, and execution.
• CFO Richard Hare noted that while leverage on costs is becoming difficult, the company remains proactive with pricing and cost controls.
• CEO Steve Burdette emphasized that political anxiety was temporary and customer focus will return to future planning.

Analyst Questions and Answers:

• Regional Trends: CEO Burdette confirmed no notable regional differences; sales declines were consistent across the footprint due to election ads crowding out marketing.
• Average Ticket Drivers: Average ticket growth was primarily driven by price increases rather than volume; management expects sustainability through expanding the designer program.
• Marketing Spend: Marketing spend was impacted by election advertising displacement; company expects to be aggressive in Q4 with Veterans Day through New Year's campaigns.
• Cost Offsets: Regarding inflationary pressures, the company is using selective pricing changes and higher average ticket thresholds for credit promotions; delivery fees are not currently being raised.
• Consumer Health: Credit data indicates affluent consumers remain financially healthy with strong approval rates, with election anxiety viewed as a temporary factor.
• SG&A One-offs: A portion of the SG&A increase ($2M) is attributed to accelerated stock vesting, which is non-recurring.

Other Key Points:

• Received $5.4M in cumulative tariff refunds to date (as of Sept 30), with $3.2M recognized specifically in Q3.
• AI utilization is expanding into customer chat, sales interfaces, and supply chain operations to improve customer experience.
• Bunker fuel and war-related logistics issues are expected to persist, potentially delaying cost normalization.
• The company is actively monitoring potential reciprocal tariff agreements between the U.S. and Vietnam that could alter the current 12.5% Section 301 tariff structure.