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

I will now turn the conference over to Tiffany Hinkle, Assistant Vice President of Financial Reporting and Investor Relations. Thank you, Tiffany. You may begin. Thank you operator. Good morning, and thank you for joining us for our third quarter earnings call. I'm here today with our President and CEO, Steve Burdette, and Executive Vice President and CFO, Richard Hare. Before we begin, I'd like to remind everyone that today's conference call may contain forward-looking statements which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which we 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. We will also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in our earnings release. A replay of this call will be available on our Investor Relations website this afternoon. For commentary about our business, I will now turn the call over to Steve. Thank you, Tiffany. Good morning, and thank you for joining our 2026 third quarter conference call. Q3 was another strong quarter with increases in written and delivered comp sales against tougher year-over-year comps. Net sales were $203.2 million, up 4.5%, with comp sales up 4,1%. Total written sales increased 2.8%, with written comp sales, up 2.3%. Additional tariff refunds received during the quarter contributed to gross margin expanding to 62.3%, compared with 60.3% last year. income was 8.6 million or 4.2% of sales compared with 6.4 million or 3.3% of sales a year ago. Earnings per share was 39 cents versus 28 cents a year ago. Richard will discuss the impact of tariff refunds on gross margins, higher interest rates on credit costs, increase in stock expenses, and higher oil prices on delivery, transportation, and material costs. Quarterly traffic declined by mid single digits but conversion rates held steady and average ticket rose seven point four percent written sales varied monthly with the Labor Day event calendar shift our July 4th weekend sales started slowly with traffic and sales down during the first six days the decline can be attributed to many nationwide celebrations of our country's 250th anniversary and July 4 itself falling on a Saturday traffic and written sales improved through the rest of July, with written sales ending the month at 5.1%. Given the one-week calendar shift in Labor Day, we believe August and September are best viewed together. Across those two months, traffic remained down mid-single digits, while business increased 1.7%. The two-week Labor Day event experienced weaker traffic, but we were able to end the two- week promotion with flat sales compared to last year due to a strong average ticket and steady conversion rates. Our designer business grew 4% for the quarter, accounting for 34.6% of our business, with designer average ticket growing 7.2%. Custom orders rose to 31.4% of our upholstery business, increasing 16.9% over last year. From a category perspective, our written business saw upholstery rise mid-single digits, with occasional bedroom and dining up low single digits, and mattresses and decor were down low single digits. Our merchandising supply chain teams continue to push to bring in new exciting products across the merchandise assortment. We are hearing that container availability, custom border protections, enhanced inspections, and in Vietnam the labor availability, along with the government's required 7% wage increase on January 1st, 2027 are becoming issues. We are seeing lead times getting pushed out, but we have seen minimal impact on our partners in our supply chain network at this point. As we approach Chinese New Year in early 2027, we will be watching closely for any further disruptions and adjust our ordering patterns accordingly. Our inventories dropped from $100.5 million at the end of Q2 to $86.7 million at the end Q3. The efforts by our supply chain to get control of our inventories took a pendulum swing too far during the quarter. We expect to end the year somewhere between $90 million and $100 million depending on product flow and sales. This is the level of inventory needed to meet our customers delivery expectations. Regarding tariffs, all things remain consistent from Q2 with the new Section 301 tariffs implemented in July. However, we are waiting for confirmation from the administration if Section 232 tariffs on upholstered wood furniture will go from 25% to 30% effective January 1, 2027. Also, we're hearing rumors that the governments of Vietnam and the U.S. have had meetings to finalize the reciprocal agreement between the countries that would remove the current Section 301 tariff of 12.5% imposed in July for a potential higher tariff percentage. We will make the necessary targeted adjustments in our pricing if these changes occur, but we'll not get ahead of ourselves as this is a fluid situation. As discussed on our Q2 conference call, bunker fuel rates remain high, causing a 25-30% increase in our container rates. Diesel fuel at roughly $6 per gallon impacts home delivery and transportation costs, as well as material costs, which are up mid-single digits. LIFO costs are not slowing, health insurance costs continue to rise, and credit costs are becoming more expensive due to usage and interest rate increases the tariff refunds of 3.2 million help to offset some of these increases during the quarter our ability to leverage these increases is becoming more difficult in this environment however we continue to get more from our marketing spend which was slightly lower for the quarter organic traffic to our site keeps improving driving double-digit growth in written ecommerce sales for another quarter to stay competitive we continue to offer aggressive no interest credit promotions such as 48 month and 60 month terms during the promotional periods but we are implementing tighter controls on their use outside of the promotional periods by raising the average ticket amounts allowed for each promotion our use of AI continues to expand into more customer facing areas including customer chat sales and designer interfaces marketing supply chain and home delivery we believe this helps our team quickly share the most relevant and accurate information with customers creating a better overall experience ultimately the way we engage with every customer along their journey creates unmatched value and sets habitus apart from our competition we ended the quarter with 129 stores during the quarter we opened a new market in Fredericksburg Virginia which we are pleased to report is outperforming our traffic and volume expectations. We plan to open five new stores in Q4 and close one that will be a relocation. McKinney, Texas, a suburb of Dallas, opened October 30th. Pittsburgh, Pennsylvania, will be opening tomorrow, marking our entry into our 18th state. Snellville, Georgia, a suburbs of Atlanta, will relocate to a larger and better location next week. In Baytown and Richmond, Texas, both suburbs of Houston opened in late November and early December, giving us five stores in the market. Also, we finalized the closing of our College Station, Texas store on August 31st. The ongoing refresh of our mattress departments and design centers remain on track for completion in all stores in 2027. These improvements provide us with big opportunities to grow these two important categories. We will continue to evaluate our existing leases and locations so that we are reinvesting our capital to create the biggest return for our shareholders. We expect to end the year with 133 stores, and we have several new stores in lease negotiations for 2027 that we hope to be able to announce on our next call. We are optimistic about finishing the year strong. While many headwinds remain, today we have turned the page on what we believe has been our biggest headwind over the last few months, the midterm elections. Hotly contested races in Florida, Texas, Georgia, North Carolina, and South Carolina, where roughly two-thirds of our stores are located, created disruptions in our marketing plans. More broadly, the news cycle over the past 60 days across our entire footprint was a disruption, but the elections are over. As the country moves forward, we expect our customers to quickly put the midterms behind them and focus on their future. Looking ahead, our optimism rests on four things. First, our people who share the belief that we must out-serve our competition. Second, our design program, which inspires customers and gives them confidence in their decisions with tremendous upside potential. Third, our organic store growth strategy of opening five stores a year, which further strengthens and expands the brand. And fourth, our execution with roughly 2,400 team members across 18 states whose hard work, dedication, and passion for serving customers, fellow team members, and shareholders is contagious and appreciated. I will now turn the call over to Richard. Thank you, Steve, and good morning. In the third quarter of 2026, net sales were $203.2 million, a 4.5% increase over the prior year quarter. Comparable store sales were up 4.1% over the prior year period. Our gross profit margin increased 200 basis points to 62.3% from 60.3%. Excluding the impact of approximately 3.2 million dollars in tariff refunds recognized in the quarter, our gross profit margin was 60.7% in the third quarter of 2026 compared to 60. 3% in a prior year quarter. Further, excluding the impact of LIFO, a $1 million expense in the third quarter of 2026, and a $624,000 expense in their prior year quarter, our adjusted gross profit margin was 61.3% in the third quarter 2026 and 60.6% in their prior year quarter. Selling general and administrative expenses increased $6.7 million dollars or 6% to 119 million dollars. As a percentage of sales, these costs approximated 58.6% of sales up from 57.8% in the prior year's quarter. We experienced an increase in selling expense of 1.8 million dollars primarily due to higher commission-based compensation and third-party credit costs and an increase in administrative expenses of $4.1 million, primarily from stock-based compensation subject to acceleration recognition, performance-based incentive compensation, and increased group insurance costs. Other income expense in the third quarter of 2026 was $20,000 and interest income was approximately $983,000 in the 3rd quarter of 2020. before interest and income taxes increased $2.3 million to $7.6 million. Our tax expense was $2,200,000 for the third quarter of 2026, which resulted in an effective tax rate of 26% versus 26.4% in the prior year period. The primary difference in the effective tax rate and the statutory rate is due to state income taxes and the impact of investing on stock awards. Net income for the third quarter of 2026 was $6.3 million or $0.39 per diluted share on our common stock compared to net income of $4.7 million or 28 cents per share in the comparable quarter last year. During the third-quarter, we recognized approximately $3.2 million in tariff refunds related to our indirect import programs as a reduction in cost of sales. Here to date, through September 30, 2026, we have received approximately $5.4 million in tariff refunds related to our direct and indirect programs, of which $4.7 million was recorded as a reduction to cost of goods sold, $170,000 was recorded as reduction to inventory, and $67,000 is recorded as interest income, and the remainder was rebated to certain supplier partners. Excluding the impact of the tariff refunds on our income statement, our net income for the quarter was $4 million or 25 cents per diluted share. Now turning to our balance sheet at the end of the third quarter, our inventories were $86.7 million which was down $9.5 million from December 31, 2025 and down $5.7 million versus Q3 of 2025. At the end of the third quarter, our customer deposits were $46.2 million, which was up $10.7 million from December 31, 2025, and up $2.4 million from Q3 2025. We ended the quarter with $120.3 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end the third of quarter of 2026, and We have credit availability of $100 million under our revolving credit facility. Looking at some of the cash flow usage, capital expenditures totaled $23 million during the first nine months of 2026 and we paid out $15.8 million of regular dividends year-to-date. We did not participate in our share repurchase program during the third quarter of 2027. August 7, 2026, our Board of Directors authorized an additional $15 million of buyback capacity. We have approximately $16.8 million of remaining authorization under our buyback program. Our earnings release lists 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. Our 2026 guidance includes tariffs currently in effect as of November 4th, 2026, but excludes any future tariff refunds that may be received from indirectly sourced products. We are closely monitoring the tariff developments to manage our exposure and minimize the impact on our business. As a reminder, the following guidance is for calendar year 2026. When we release our Q4 earnings, we will provide 2027 guidelines. We expect our gross margins for 2026 to be between 61.3% and 61.5%, which is an increase in our previous guidance due to the receipt of tariff refunds. We anticipate gross profit margins will be impacted by our current estimates of product, freight, and LIFO expenses. Our fixed and discretionary type SG&A expenses for 2027 are expected to remain in the $307 to $309 million range. Preferable type costs within SG&A for 2026 are expected to be in the range of 19.2% to 19.4%, which is an increase from our prior guidance due to higher delivery and transportation costs associated with higher fuel prices and increased third-party credit costs. Our plan cap X for 2027 remains at $34 million. Anticipated new or replacement stores, remodels, and expansions account for $27.7 million. Investments in our distribution network are expected to be $3.2 million, and investments in our information technology are expected at approximately $3 million. Our anticipated effective tax rate for 2026 remains at 26%. This projection excludes the impact of 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 the call for questions at this time. Thank you. We will now be conducting a question and answer session. Our first question is from Anthony Levizinski from Zozoti & Co. Please proceed with your question. Thank you and good morning, everyone, and thanks for taking the questions. It's certainly nice to see another quarter of sales and earnings growth here in 3Q. So I know you touched on that a little bit as far as trends during the quarter. Were there any notable regional differences that you saw as you progressed from July through September? I'm just curious about that. Not anything as notable, Anthony, that we've seen. I mean, it's pretty much across the board we're seeing the effect. Some are more so than the others, but nothing notable. Gotcha. Yeah, thanks, Steve. And then, you know, in terms of the average ticket going up, you know, how much of that you think was due to pricing versus unit volumes or mix? And do you think these average ticket increases are sustainable? You know, I'm still going to say it's probably still driven by price. We did see our units stay fairly flat per ticket overall, but we saw a little decrease in our designer deals on the unit numbers there. So I'm still going to say it's driven by price majority on that. We do think there's opportunity to continue to maintain that and grow that with our design business as we want to try to grow that from being in that 17% range or so of customers that are participating and driving that upwards to the 25% or so that we think that will certainly will drive more of the average ticket will be a big contributor to that success. Gotcha. Okay. And then, Steve, you also mentioned in your remarks about just all the disruptions with the midterm elections, advertising and marketing spending. Can you perhaps give us some little bit more details as far as you know how disruptful you think this might have been i mean october is typically not a seasonally strong month for for furniture buying but i mean if you could just maybe kind of give us some some color whether this was similar to the last you know election two years ago was it you know anything else you can you can add to that that would be very helpful yeah i'm not going to talk about october So we're talking about Q3 on the side of this. What we know so far, and it's still early, you know the political ads take precedent on any TV, and so you can get bumped with what you have. We saw that in the July 4th a little bit. We haven't gotten all the information for Labor Day yet on what happened there, but we suspect it was even more so or more prevalent during that time period as well. But we will know that shortly in the next probably 30 to 45 days. So as far as comparing it to 2024, I think this was very contentious. It was the biggest spend of any midterm ever. I think I heard a number of $12 billion was spent in advertising. I could be wrong. I heard that. So it definitely created, I Think there was a lot, as I talked about, a lot of anxiety, not just in the five states that make up two-thirds of our stores, but across the whole footprint. I mean, there was anxiety. You couldn't turn on an ad that you were hearing something, and that doesn't matter what side of the aisle you're on. There was just a lot of anxiety of what was going to happen. But as I said in my comments, it's over, and there is no questions, and we don't have to worry about it. It's not lingering. We're going to move forward, and I think our customers will as well. That's very helpful context. Well, thank you very much, guys, and best of luck. Thanks, Anthony. Our next question is from Christina Fernandez with Telsey Advisory Group. Please proceed with your question. Hi, good morning. I wanted to follow up on the last topic. You mentioned the midterms had an impact on your marketing expense and that it was down year over year. With the midterm behind now, do you plan to increase marketing expense in the fourth quarter how are you thinking about using that as a lever to drive sales going forward yeah Christina we've been pretty consistent with it all year you know what we don't know is what didn't run and that's the part I don't know in September we get that after the fact and get credits back on that so I'm covering with you what our expense was and what was planned what we are suspecting and what we've seen from July 4 there was more prevalent probably in and Labor Day as the ads started ramping up that we were getting pushed out. So that's really kind of us thinking through it. I don't know it yet, but we're expecting that, and all indications lead to that, so I can't quantify it. Going forward, we're going to continue to push and promote. Obviously, as we look forward, we know the elections were only ramping off in October. That's behind us now. We've got Veterans Day, and after Thanksgiving, moving. We got moving into New Year's and after Christmas sale. So, we will be back active and very aggressive to push through the remainder of Q4 and then head into 2027. On your pre-PERC remark, you cited a number of inflationary pressures. If you look ahead, there any levers you can pull to offset these calls like for example do you plan to make changes in pricing you know perhaps your delivery fees or change your financing offers how are you looking at off sending some of these calls to the extent you can yeah I mentioned on the credit calls we're looking to try to offset those in the off promotional periods you know and looking at increasing the average ticket and where they can be used and hopefully that can lower that you know LIFO costs are hitting us and that's that's real that's about material increases that are coming from those we are making selective pricing changes retail pricing changes to in order for us to maintain our margins and where we're going and that would apply to also the bunker fuel I hope the bunker fuel and diesel fuel increases will subside, but we've got to get this war behind us, I believe, before we're ever going to see that. And so that's kind of an unknown as to how long that's going to last at this point. We're not entertaining right now any increases in delivery fees at thispoint to our customers as we move forward. So health insurance costs, I mean, those are coming at us, and it will continue. Hopefully we get a better performance going into next year, but that's just about the health of our team members and how well we're taking care of ourselves as we go forward. Obviously we're trying to promote that internally and make sure everybody is as healthy as they can be. So there's not a lot, as I told you, it's getting more difficult to leverage this, Christina, on these costs as we get forward. We've got to produce volume to create the leverage on some of these ones that we're dealing with. Yeah, understood. And then lastly, just kind of big picture on your specific consumer. You know, up until recently, this consumer, more affluent, was in good health. You know financially, did you still feel like that's the case and the behavior you saw in the third quarter was a bit more temporary? or how do you think this consumer is financially in their propensity to spend as you look at the next let's say six to twelve months hey Christina just a couple things on that from what we're seeing from synchrony who has the credit statistics on our consumers about a third of which use synchrony to finance their product we continue to see very strong approval rates you know above 750 credit scores almost nine percent approval in store so our consumer is holding up well I just my personal opinion is there's some angst about the elections that's behind us the markets up today which tells me you know the market thinks it's a good thing that all of its behind us and we're looking forward to the future I also want to just point out one other thing on GNA costs about two million of the GNA cost increase related to accelerated vesting of stock awards and that's just because certain individuals reach a certain age within the company so that's more of a one-off so all the increase is not it's not permanent but at least two million of that is temporary and should not repeat itself in the near term thank you so much we have reached the end of the question and answer session I would like to turn the floor back over to Tiffany Hinkle for closing comments thank you for your participation in today's call we look forward to talking to you in the future when we release our fourth quarter results have a great day everyone