Haverty Furniture(HVT) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2019, sales were $191.9 million, a 3.5% decrease compared to the prior year quarter, with comparable store sales down 2.3% [18] - Q2 earnings per share were $0.29, unchanged from the previous year [6][22] - Gross profit margin decreased by 20 basis points to 54% due to merchandising, pricing, and mix, along with slightly higher product and freight costs [18] - Selling, general and administrative expenses decreased by $3 million to $95.8 million, primarily due to reduced selling and delivery costs [19] Business Line Data and Key Metrics Changes - Average sale increased by 5.3% over the previous year to $2,341, attributed to growth in H Design sales [10][11] - H Design sales reached the 25% target outlined at the program's inception, with growth continuing in several markets [11] Market Data and Key Metrics Changes - Positive written sales trend observed for the first time in many months, with written sales and undelivered backlog up in the high single digits [13] - Deliveries increased in the low single digits quarter-to-date [13] Company Strategy and Development Direction - The company is investing heavily in new systems and technology to enhance customer experience and reach target customers [9] - Plans to open new stores in St. Louis and Newnan, Georgia, with expectations of slight increases in selling square footage by the end of 2019 [15] - Focus on improving product quality, service levels, and timely delivery to meet customer expectations [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, citing better fashion-oriented products and improved in-stock positions [16] - Challenges remain due to tariffs and the transition of production from China to Vietnam, but management believes they are better positioned than competitors [35][36] - The company expects gross profit margin for the full year to be approximately 54.1% [26] Other Important Information - The company adopted a new lease accounting standard on January 1, 2019, which requires capitalization of lease obligations [25] - CapEx for 2019 is planned at $90 million, including the opening of three new locations [27] Q&A Session Summary Question: Insights on the solid start to Q3 and Fourth of July event performance - Management attributed improved sales to better coordination in media and marketing, resulting in clearer messaging [33][34] Question: Positioning in Vietnam compared to competitors - Management believes they have strong relationships with key suppliers in Vietnam, which positions them favorably despite infrastructure challenges [35][36] Question: Store growth strategy in markets with single locations - Management indicated that store growth will depend on demand, with a focus on significant locations rather than rapid expansion [37][39] Question: Changes in gross margin outlook - Management noted a 50 basis point decline in projected gross margin due to tariffs and increased freight costs [47][48] Question: Impact of stocking issues on same-store sales - Management acknowledged that improved stock levels on best sellers contributed to better sales performance [50][51] Question: Update on exposure to China and product transition to Vietnam - Management reported a reduction in imports from China, with ongoing challenges in shifting production to Vietnam [58][59] Question: Pricing changes on best-selling items due to tariffs - Management observed initial volume declines due to price increases, but noted recovery as products are perceived as better value [60] Question: Positioning for potential future tariffs - Management indicated that current cost structures already account for anticipated tariffs [61]