Haverty Furniture Companies, Inc. Q3 FY2025 earnings call

• Sales for Q3 were up with written and delivered comp sales increasing. The Labor Day event was the largest of the year with strong written sales growth. - Merchandising and supply chain teams moved production out of China. - New tariffs on furniture were implemented, with adjustments made to pricing. - Opened a new store in the Houston market and finalized leases for future openings. - Marketing investments increased, including AI use and direct mail campaign, with web traffic and e-commerce sales growing. - Store count to end the year at 129, with plans to return to store growth goals in 2026.

In the third quarter of 2025, Haverty's sales were $194.5 million, up 10.6% with comps up 7.1%. Total written sales were up 10% with comps up 8%. Gross margins were 60.3% compared to 60.2% in Q3 2024. Pretax profits for the quarter were $6.4 million or 3.3% operating margin compared with $6.9 million or 3.9% operating margin in Q3 2024. EPS for the quarter was $0.28 compared to $0.29. The design business accounted for 34.2% of sales, driven by a 7.1% increase in upholstery special orders.

• Expected gross margins for 2025 to be between 60.4% and 60.7%. - Fixed and discretionary SG&A expenses for 2025 expected to be in the $296 million to $298 million range. - Planned CapEx for 2025 remains at $24 million. - Anticipated effective tax rate in 2025 is 26.5%.

• High interest rates and rising home prices hurting the housing market. - Tariffs on furniture, including new ones implemented and potential future ones. - Geopolitical tensions and consumer confidence falling. - Government shutdown impacting the business.

Q: So very nice to see the return to positive same-store sales here in the quarter. I know you highlighted the strong Labor Day. Just -- can you comment also just on the monthly trends that you saw in the third quarter and whether or not you saw any notable regional differences in your markets?

A: Our written business trends in the third quarter in July, we were up on a same-day week basis, a little -- about 10.6% in July, 10.9% in August and a little over 8% in September. Deliveries were fairly consistent, 11.6% in July, 7% in August and 13.1% in September. I don't believe there are much, if any, regional differences. But Steve, I don't know if you got anything else you want to add.

Q: And then as far as tariffs, is there any way you guys could quantify or like give a sense as to the impact of tariffs that had on the quarter?

A: We don't -- a dollar impact, no, because we adjusted in our pricing. I mean, we've been very clear from the beginning. We make strategic price changes immediately once we know the tariffs. And we feel like our positioning on that, even going back to COVID when we were doing all price increases, we know how to handle this and know how to move forward with it. So I don't think we had it. But the impact would come on LIFO, and I'll let Richard talk to that specifically.

Q: Congratulations also on the positive comp. I wanted to see if you can talk more about the composition of that comp. It definitely seemed like ticket was the bigger driver. So I wanted to understand, is that mostly due to the price increases? Or are you seeing consumers kind of trade up on the price points or navigate to some of those bigger ticket items?

A: Certainly, average ticket is driving that. One thing that we do look at is we have been able to drive our design tickets up by selling -- we're selling basically more pieces to the consumer. We measure that. And so that's helped drive it. But obviously, price increases are having an impact on that as well. I don't have a direct breakdown between the two, Cristina, but there's certainly both of those. And I will also add conversion rates, while we're not above last year, we are getting, as I commented in my notes, we're basically low single digits, and we were running mid-single digits at Q2 when I reported. So we're seeing continual improvement there, and that's obviously still a focus for us and where we think we still have significant opportunities moving forward.

Q: And then on the price increases to offset the newer Section 232 tariffs, what's the timing of that? Have you already taken some or that's something that's going to take place here in the fourth quarter?

A: It has already taken place in early October. We got -- as soon as we knew and got to it, as I said, our merchandising and supply chain teams were working with our factories to get everything solidified and price changes were made early to mid-October. So they are already in place now as we go forward.

Q: And then I also -- my last question is on the, I guess, bigger picture, how should we think about the level of sales where you can leverage SG&A expenses? I mean you had a great growth rate this quarter, 10%, but expenses grew faster than that. So should we think about a growth rate or more an absolute number of sales that will allow you to leverage those expenses and start to see operating margin expansion year-over-year as your sales grow?

A: Yes, Cristina, if you look historically, when we get particularly above $800 million and -- $800 million to mid-$800 millions, you really start seeing some expansion there. And then as you saw during the COVID years when we blew $1 billion, you really saw it fall. So I would definitely, in my mind, over $800 million, you really see it falling significantly to the bottom line.