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

Explicit Guidance:

• Gross Margins (2026): Expected between 61.3% and 61.5%, an increase from prior guidance driven by the recognition of tariff refunds; excludes any future indirect tariff refunds.
• Gross Margin Drivers (2026): Anticipated to be impacted by product costs, freight, and LIFO expenses.
• SG&A Expenses (2026): Preferred (variable) costs expected to range from 19.2% to 19.4% of sales, an increase from prior guidance due to higher fuel prices and third-party credit costs; fixed and discretionary costs not explicitly guided for 2026 but noted as increasing 6% in Q3.
• SG&A Expenses (2027): Fixed and discretionary type expenses expected to remain in the $307 million to $309 million range.
• Capital Expenditures (2027): Plan remains at $34 million total, comprising $27.7 million for new/replacement stores, remodels, and expansions; $3.2 million for distribution network investments; and ~$3 million for IT.
• Effective Tax Rate (2026): Projected at 26%, excluding the impact of stock award vesting or new tax legislation.
• Dividends: $15.8 million paid out year-to-date (2026); no specific quarterly guidance provided, but regular payouts continue.
• Share Count/Buybacks: $16.8 million remaining authorization under the buyback program (authorized August 7, 2026); no participation in the program during Q3 2026.
• 2027 Guidance: Management will provide full 2027 financial guidelines upon the Q4 2026 earnings release.

Business-Segment Outlook:

• Store Expansion: Target to open five new stores in Q4 and close/relocate one (McKinley, TX closed/relocated); expected year-end store count is 133 (up from 129).
• Future Store Count: Several new stores are in lease negotiations for 2027, with announcements expected on the next call.
• Category Strategy: Ongoing refresh of mattress departments and design centers on track for completion in all stores by 2027 to drive category growth.
• Designer Business: Goal to increase customer participation from ~17% to ~25% of the customer base to sustain average ticket growth.
• E-commerce: Organic site traffic continues to improve, driving double-digit growth in written ecommerce sales.
• Inventory Management: Q3 ending inventory was $86.7 million; expected to close 2026 between $90 million and $100 million to meet delivery expectations.
• Custom Orders: Custom orders already rose 16.9% year-over-year in the upholstery segment (31.4% of upholstery business).

Market and Competitive Outlook:

• Demand Trends: Optimism that customers will move past mid-term election anxiety and focus on future spending; marketing disruptions from the election cycle are expected to resolve.
• Pricing Strategy: Will implement targeted price adjustments if Section 232 tariffs on upholstered wood furniture rise from 25% to 30% (effective Jan 1, 2027) or if Vietnam/U.S. reciprocal agreements alter Section 301 tariffs.
• Pricing Levers: Increasing average ticket amounts allowed for credit promotions outside promotional periods to offset rising third-party credit costs; selective retail pricing changes ongoing to maintain margins.
• Competition: Commitment to "out-serve" competitors through design programs and aggressive store growth (5 new stores/year).

Macro / Industry Outlook:

• Tariffs: Monitoring Section 232 tariffs (potential 30% on wood furniture in 2027) and potential changes to Vietnam Section 301 tariffs; managing exposure to minimize business impact.
• Labor: Vietnam government mandated 7% wage increase effective January 1, 2027; labor availability in Vietnam remains a monitoring point.
• Supply Chain: Container availability, customs inspections, and lead times are extending; managing potential disruptions around Chinese New Year 2027.
• Fuel Costs: Bunker fuel rates remain high, driving 25-30% increases in container rates; diesel prices (~$6/gal) impacting delivery and material costs.
• Regulatory/Geopolitical: Ongoing war and geopolitical tensions viewed as the primary driver for fuel volatility; elections viewed as a resolved headwind.
• Consumer Health: Consumer credit approval rates remain strong (>750 scores, ~9% in-store approval); consumer financial health considered stable despite election-related anxiety.

Strategic Initiatives:

• AI Integration: Expanding AI usage into customer-facing areas (chat, sales, designer interfaces), supply chain, and marketing to enhance information accuracy and customer experience.
• Store Footprint: Entering 18th state (Pittsburgh, PA) in Q4; specific new locations in Fredericksburg, VA, and additional Houston suburbs (Baytown, Richmond) opened.
• Lease Optimization: Continuously evaluating existing leases to reinvest capital for maximum shareholder returns.

Risks and Headwinds to Outlook:

• Cost Inflation: LIFO costs, health insurance, and third-party credit costs are rising; ability to leverage these increases is becoming more difficult.
• Tariff Uncertainty: Potential increases in Section 301 or Section 232 tariffs could negatively impact margins if not offset by pricing.
• Supply Chain Disruptions: Labor availability in Vietnam, required wage hikes, and potential Chinese New Year disruptions could extend lead times.
• Fuel Volatility: Sustained high bunker and diesel prices could pressure freight and delivery costs.
• Stock Compensation: Accelerated vesting of stock awards (one-off $2M expense) and performance-based incentives are causing temporary SG&A spikes.
• Marketing Disruptions: Election advertising cycles created temporary marketing plan disruptions and increased customer anxiety (now resolved).

Management Tone on the Future:

• Confidence Level: "Optimistic" about finishing the year strong and entering 2027.
• Sentiment: Shift from "turning the page" on the election headwind to a focus on four core strengths: people, design program, organic store growth, and execution.
• Hedges: Management explicitly states they will "not get ahead of ourselves" regarding fluid tariff situations and will wait for administrative confirmation before making strategic pricing adjustments.
• Outlook Consistency: Guidance for 2026 gross margins was raised due to tariff refunds; 2027 SG&A guidance reflects inflationary pressures.

Miscellaneous:

• Financial Position: $120.3 million in cash and cash equivalents; no funded debt; $100 million credit availability.
• Customer Deposits: Increased to $46.2 million (up $10.7 million from Dec 2025).
• New Market Performance: Fredericksburg, VA market reported outperforming traffic and volume expectations immediately upon opening.