Haverty Furniture Companies Stock

Greetings, and welcome to the Havertys Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tiffany Hinkle, Assistant Vice President of Financial Reporting and Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us for our second 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 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.

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 second quarter conference call. Q2 was a strong quarter, and I want to lead with the headline. We doubled earnings per share and delivered our fourth consecutive quarter of positive written and delivered comp sales. Net sales for Q2 were $194.9 million, up 7.7%, with comps up 8%. Total written sales were up 12.6%, with comps up 12.3%. Gross margin expanded 60 basis points to 61.4% from 60.8% last year. Pretax income was $7.4 million, or 3.8% of sales, compared with $4.3 million, or 2.4% of sales, a year ago, and earnings per share came in at $0.32 versus $0.16 a year ago.

Richard will cover the impact of our recent stock buybacks, LIFO, tariff refunds and expectations for future tariff refunds in his discussion. Written sales grew double digits every month of the quarter. Our Memorial Day promotion was up 9.7% for the 4-day period and up 14.1% for the 2-week period. Traffic increased slightly, and closing percentages held steady during the quarter. But the standout was average ticket, which rose 14% to over $3,800, led by design average ticket, which was up 15.7% to over $8,800.

Design accounted for 36.5% of our business as it continues to drive our custom special order business, which rose 23.6%. Customers love being able to choose exactly the right fabric or leather in their preferred color from our vast assortment. Every merchandise category was positive for the quarter, with double-digit increases in upholstery, bedroom, dining and occasional, and mid-single-digit growth in mattresses and decor.

Our merchandising and supply chain teams continue to execute our merchandise plan, keeping assortments nimble and best sellers in stock to meet customer demand. In May, I traveled with our merchandising team to our Vietnam factories to further strengthen our partnerships with our key suppliers. While in Vietnam, I had the opportunity to meet our newly expanded Havertys Vietnam quality team in person. The team plays an essential role in Havertys' success, and I came away more energized about our capabilities and our opportunities.

We reduced inventories from $106.9 million at the end of Q1 to $100.5 million at the end of Q2. That result shows what supply chain, distribution, merchandising and store operations can accomplish working as one team, driving sales while improving inventory turns. We expect to end Q3 in the $95 million range, with a 5% swing either way, depending on product flow and sales. This will position us to meet our customers' delivery expectations and achieve our sales goals.

On the tariff front, the new Section 301 tariffs that replaced the Section 122 tariffs on July 24 came in at 10% and 12.5%, giving us more confidence heading into the balance of the year. As expected, the Section 232 tariffs on upholstered wood furniture remained at 25%. We are actively managing 3 cost pressures related to fuel increases that will impact our margins and expenses throughout the remainder of the year.

One, beginning in mid-August, we will see roughly a 25% to 30% increase in our container rates due to the increased bunker fuel rates. Two, if diesel fuel remains above $5 a gallon due to continued geopolitical pressures, we will continue to see increases in our transportation and delivery fuel expenses through year-end. And three, the additional impact that the fuel increases will have on our product input costs for the remainder of the year.

We expect the tariff refunds already received, along with the potential future refunds from third-party suppliers, to help us offset some of these cost pressures. This will give us flexibility to be more selective with any retail price adjustments as we remain committed to our full year gross margin guidance of 60.5% to 61%, excluding any additional tariff refunds. Our marketing, creative and media plans remain consistent as we continue to use connected TV, broadcast TV, social media and other digital channels. We continue to utilize direct mail to showcase for our customers what our designers can do to bring their homes to life, focusing on winning new customers.

A new customer spends 50% more than a repeat customer, so that shift carries real value. Our second annual Thank You loyalty e-mail campaign, which ended in early June, rewarded our repeat customers for their patronage of our brand. Appealing to both sets of customers, new and repeat, is vital to our overall growth. Organic traffic to the site continues to improve as we strengthen our organic visibility in both SEO and GEO, and that helped drive written e-commerce sales up double digits for the quarter.

Our marketing dollars were slightly down for the quarter as we continue to leverage these expenses. Our use of 60-months-no-interest financing was consistent with last year, though the cost of these programs continues to tick up. We will stay aggressive with our credit offerings during the promotional periods so that we meet our customers' financing demands and stay competitive in each of our markets.

We are encouraged by the momentum of AI across the business. During the quarter, we expanded our use of AI beyond marketing, supply chain and IT development into additional customer-facing and operational areas, including home delivery, customer chat and sales, and designer communications with customers. We believe these capabilities will become another point of differentiation by improving both how we execute and how we serve our customers.

We ended the quarter with 129 stores. During the quarter, we opened 2 new locations, one in St. Louis, Missouri, and one in Nashville, Tennessee, and both are running ahead of budgeted traffic and volume expectations. We plan to open 6 new stores in the second half of the year, with one being a relocation. Fredericksburg, Virginia, will open late in Q3. Pittsburgh, Pennsylvania, will open in early Q4 and will mark our entry into our 18th state. Snellville, Georgia, a suburb of Atlanta, will relocate in mid-Q4. McKinney, Texas, a suburb of Dallas, opens in mid-Q4. And then Baytown and Richmond, Texas, both suburbs of Houston, open in late Q4.

We finalized the closing of our San Angelo, Texas, store on June 30, and plan to close College Station, Texas, on August 31. 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 the year to end with 133 stores. We continue the refresh of our mattress departments and design centers, which showcases two of the biggest opportunities for growth in our stores. We will have just over half the stores complete by year-end, with the remainder to be finished in 2027.

We are optimistic about the remainder of 2026, and here's why. Our customers remain resilient at the upper end of the market. We are opening six new stores in the second half of 2026. We have had 4 consecutive quarters of positive written and delivered comp sales. Our marketing plans are reaching our customers with a message of design and confidence in our brand. Our design business continues to grow, with meaningful upside still ahead in average ticket and customer engagement. Our merchandising team is committed to introducing new products faster, creating excitement for both our teams and our customers.

Our supply chain network, in combination with our fantastic suppliers, allows us to deliver quality products on time. Our investment in training and coaching our teams, paired with AI, is driving productivity. Our inventories are in excellent shape with low markdowns. Our distribution, home delivery and customer service, which are all Haverty team members, provide our customers with consistent professional service. And then finally, we are heading into our biggest holiday of the year, Labor Day, with momentum. I want to thank our roughly 2,400 team members across 17 states for the hard work, dedication and passion they bring to serving our customers' home furnishing needs.

Our people remain one of the most important assets and a true differentiator against our competition. That expectation was set decades ago by Clarence Haverty, who created our motto that we live by today. Remember, our reputation is in your hands. At the point of contact with the customer, you are Havertys. I will now turn the call over to Richard.

Thanks, Steve, and good morning. In the second quarter of 2026, net sales were $194.9 million, a 7.7% increase over the prior year quarter. Comparable store sales were up 8% over the prior year period. Our gross profit margin increased 60 basis points to 61.4% from 60.8%. Excluding the impact of approximately $1.5 million in IEEPA tariff refunds recognized in cost of sales in the quarter, our gross profit margin was 60.7% in the second quarter of 2026 compared to 60.8% in the prior year quarter.

Further, excluding the impact of LIFO, a $496,000 expense in the second quarter of 2026 and a $100,000 expense in the prior year quarter, our adjusted gross profit margin was 60.9% in both periods. Selling, general and administrative expenses increased $5.8 million, or 5.4%, to $113.2 million. As a percentage of sales, these costs approximated 58%, down from 59.3% in the prior year's quarter. We experienced an increase in selling expense primarily due to higher commission-based compensation and third-party credit costs, an increase in administrative expenses, primarily from higher salaries, performance-based incentive comp and related benefits, and also an increase in delivery and transportation costs.

Other income expense in the second quarter was $74,000 and interest income was approximately $923,000 during the second quarter of 2026. Income before income taxes increased $3.1 million to $7.4 million. Our tax expense was $2.1 million for the second quarter of 2026, which resulted in an effective tax rate of 28.5% versus 37.8% 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 vesting of stock awards.

Net income for the second quarter of 2026 was $5.3 million, or $0.32 per diluted share on our common stock, compared to net income of $2.7 million, or $0.16 per share, in the comparable quarter last year. During the second quarter, we received $2.1 million in IEEPA tariff refunds related to our direct import program. Approximately $1.5 million was recorded as a reduction to cost of goods sold, $140,000 was recorded as a reduction in inventory, $67,000 was recorded as interest income, and the remainder was rebated to certain supplier partners. Excluding the impact of the IEEPA tariffs on our income statement, our net income for the quarter was $4.2 million or $0.25 per diluted share.

Now turning to our balance sheet. At the end of the second quarter, our inventories were $100.5 million, which was up $4.3 million from year-end and up $7.2 million versus Q2 of 2025. At the end of the second quarter, our customer deposits were $43.3 million, which was up $7.8 million from year-end and up $4 million from the Q2 2025 balance. We ended the quarter with $104.3 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the second quarter, and we have credit availability of $100 million following the June amendment of our revolving credit facility, which increased our borrowing capacity from $80 million to $100 million.

Looking at some of our cash flow usage, CapEx was $13.1 million during the first 6 months of 2026, and we paid out $10.6 million of regular dividends year-to-date. We purchased approximately 723,000 shares of common stock for $16.6 million year-to-date, including 600,000 shares repurchased in June for approximately $13.9 million in a privately negotiated transaction, and we have approximately $1.8 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'll highlight a few, but please refer to our press release for additional commentary. Our 2026 guidance includes tariffs currently in effect as of August 4, 2026, but excludes future IEEPA tariff refunds that may be received for our indirectly sourced products. We are closely monitoring the tariff developments to manage our exposure and minimize the impact on our business. We expect our gross margins for 2026 to remain between 60.5% and 60.1% (sic) [ 61% ]. 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 2026 remain in the $307 million to $309 million range. The variable type costs within SG&A for 2026 are expected to be in the range of 18.7% to 18.9%. Our planned CapEx for 2026 are approximately $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 to be approximately $3.1 million.

Our anticipated effective tax rate for 2026 is expected to be 26%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the second quarter financial results. Operator, we would like to open the call up for any questions at this time.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti & Co.

It's really nice to see the solid results for top line and bottom line as well. So just curious, I know you touched on the written same-store sales, said that you had double-digit increases in every month of the quarter. Just wondering if you could also talk about the delivered same-store sales, how those progressed during the course of the quarter?

Yes. Anthony, I'll take a stab at it and then Steve can supplement. So just on the written business, April was -- this is for the whole company, 10.6% increase. May was 15.7% and June was 10.2%. So as Steve said earlier, double digits every month was terrific. Delivered business, a lot of momentum picking up during the quarter. We were up approximately 4% in April, approximately 8% in May, and approximately 11% in June.

Got you. Just wondering if you saw any notable regional differences in your operating area? Or was it more or less kind of consistent?

Anthony, this is Steven. Yes, it's pretty much across the board. I mean, every district was up. It was great to see. We continue to have strength out of the Midwest, which continues to do well. Our Eastern district has done well. Florida and Texas have more difficult comparisons, but they were all positive. Every district was positive. So it was a very encouraging quarter.

Got you. Okay. Based on your average ticket comments, it sounds like, obviously, this is driven more by pricing. And as far as your confidence level as far as the average ticket going forward here, how would you characterize that as far as your ability to continue to improve that average ticket?

Yes. Anthony, the real exciting thing is, yes, it is driven somewhat by pricing, but we're getting more units per ticket, and that's overall as a company and as in the design tickets. And so we're in that mid-single-digit range of increasing units per ticket. And that, in combination with our pricing, is driving that increase in average ticket. And I feel good about it. I see solid gains that we can continue to have there.

And I think we have huge opportunity still with design as we're still only attracting about high teens percentage of our customers that are using design. We think that number, as I've always said, it can be somewhere in that 25-plus percent range. So we still have a potential upside there going forward.

Got you. All right. And then just last question for me. In terms of the increased guidance for variable SG&A, you pointed to higher selling expenses. Can you be a little bit more specific as to what you're seeing in terms of cost pressures?

Yes. As Steve mentioned it earlier, it's primarily third-party credit costs. So we're -- the usage, we're monitoring, but it's just a little bit more expensive this year than it was last year in terms of the rates we're being charged.

Our next question comes from Cristina Fernandez with Telsey Advisory Group.

Congratulations on a good quarter. I had a couple of questions. The first one is, can you talk about the traffic trends you saw during the second quarter? I assume there was some improvement from the first quarter that was hurt by weather. And broadly, what are you -- I mean, are you seeing the consumer sort of go back more to furniture stores in the past couple of months?

Yes. As I commented in the notes there that, yes, traffic did turn back positive. It was negative in the first quarter. We did say there were other reasons for that. As you pointed out, the weather and then the breakout of the war, Epic Fury at the end of February and early March. But we did see a nice bounce back in traffic, and it was pretty consistent throughout the quarter and came in slightly positive. So we're encouraged by that.

And you talked about the affluent consumer, which is most of your consumer doing well. When you look at the range of price points that you sell, are there any noticeable trends, meaning, are higher price points selling better or the improvement you're seeing broad-based?

We're not really seeing anybody shy away from it. I mean we carry the price points. The higher-end price, points design is doing extremely well with the special orders and the higher-end products. So the higher end of our line is continuing to do well. We've got a mix of good, better, best, and they all serve a need and meet our customers' demand. So we're seeing it across the board. There's just a constant lift there.

And then I had a question on the tariff refunds. Should we assume that the bulk of the refunds is what you already received, those were the, I guess, first party or the ones based on your direct sourcing? Or it was still to come from the third parties, a similar amount or perhaps bigger?

Cristina, so the tariffs we received so far that we talked about were -- you're correct. Those were the directly sourced tariffs. And I think that concludes all the -- we don't expect any more directly sourced tariffs. On the indirectly sourced, those involve multiple parties. Negotiations are in progress right now to determine what amount we'll get. It could be 2 or 3 more parties involved with this. Some of our vendors incurred legal fees. So that could impact the amount. It is ongoing.

Big picture, I don't expect it to result in a materially different amount from the direct, plus or minus $1 million to $1.5 million. So we'll just have to wait and see, and we will record that once we receive it. And we hope to get something in this calendar year for the indirects.

Okay. And then the last question I had was on the fixed SG&A through the first half, those are running up around 2%. Your guidance is for those -- that line item to increase sort of 3.5%. I assume that's mostly tied to the store openings. So is that back half weighted that increase or fourth quarter weighted? Or should we see a step-up in both the third and fourth quarters?

Yes. There is a step-up in the third and fourth quarters. Some of that is rent and occupancy cost. That's primarily the big area there in terms of the non-variable G&A cost. And that guidance remains -- our guidance remained -- didn't change on that. The same guidance we gave out in the first quarter. Yes, it steps up in the back half.

We reached the end of our question-and-answer session. I would now 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 with you in the future when we release our third quarter results. Have a great day, everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Haverty Furniture Company's First Quarter 2026 Earnings Conference Call.[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tiffany Hinkle, Assistant Vice President, Financial Reporting and Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us on our first 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 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. 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.

Good morning, and thank you for joining our 2026 first quarter conference call. We are excited to report another increase in both written and delivered comp sales for Q1, marking our third consecutive quarter of positive comps. Our net sales for Q1 were $189.1 million, which was up 4.1% with comps up 4.3%. Total written sales were up 6.4% with comps up 7%. Gross margins for the quarter came in at 61.5% versus 61.2% last year. Pretax income for the quarter was $6 million or a 3.2% operating margin versus $5.3 million or a 2.9% operating margin, resulting in $0.26 a share versus $0.23 a share.

During the quarter, our written sales increase was due in part to the strong 2-week run-up to the President's Day weekend, which was up 8.3%. During the quarter, we saw traffic down low single digits despite the disruptions that we experienced with weather in January over a 10-day period and the beginning of operation at Epic Fury in March. Closing percentages were flat with last year, but average ticket rose 11.9% to approximately $3,700. Our design business accounted for 35.3% of our business for the quarter, rising 6.3%, with a design average ticket rising 11.7% to approximately $8,300. Our custom special order business rose 10.1% to 34.5% of our upholstered business, driven by our continued success in design. Having the ability to offer a customer a choice of over 1,000 fabrics with different styles, patterns and colors creates opportunities for our sales and design teams to ensure our customers are getting their desired selection. Our merchandising and supply teams continue to focus on bringing in the latest trends to meet customer demand.

The merchandising team has become more nimble in assortment planning, enabling us to get newer products to the floors faster. We are in the fashion business, so updating our products with fresh new looks creates excitement not only for our sales and design teams, but for our customers. From a category perspective for the quarter, occasional was up double digits, upholstery and dining room were up mid-single digits. Mattresses were up low single digits, bedrooms were flat and accessories were down slightly. Inventories increased $10.7 million to $106.9 million during the quarter. This increase was planned and driven by three factors: the introduction of new products across our lineups, our continued focus on having best sellers in stock and the pull forward of orders ahead of Chinese New Year to ensure continuous product availability. We expect to see our inventory drop below $100 million by the end of Q2, putting us at the level we feel is needed to meet our customers' delivery expectations.

We will start to see the effects of the administration's new reduced Section 122 tariffs implemented in February during Q2. However, we expect further changes to the tariff percentages by the administration in early Q3 as we approach the expiration of these Section 122 tariffs in mid-July. Also because of the prolonged Epic Fury operation, rising oil prices will impact us in Q2 in several areas across the business. Vendor input costs are rising, resulting in price increases, fuel surcharges on bunker fuel rates on containers, rising fuel expense for dedicated fleet serving DC to DC and rising fuel expenses at the pumps for home delivery fleet serving our customers. These rising costs will impact margins and expenses. However, these costs are factored into our margin and expense guidance, which Richard will address in his comments, along with updates on LIFO.

Our marketing creative and media plans continue to resonate with our customers through connected TV, broadcast TV, social media and other digital channels. We're leveraging AI data and technology to optimize our media placement and customize messaging by market. In February, we brought on a new technology partner that allows us to measure the full customer journey from seeing an ad to visiting the website to visiting a store. This allows us to better measure our customers' path to purchase as well as determine which tactics and messages drive more store visits. We will continue to lean in on direct mail in Q2, leading up to our biggest promotion of the first half of the year, Memorial Day. Our improving organic traffic to the site is supported by strengthening the SEO foundation and laying the groundwork for AI search optimization. Our written e-commerce sales continue to outperform, increasing double digits for the quarter.

Our marketing dollars were flat for the quarter as a percent of net sales as we continue to leverage this expense. Our use of 60 months no interest financing for competitive reasons has increased our credit costs during the quarter. However, we expect to still be aggressive with our credit offerings going forward to ensure our customers have the financing they need to meet their furnishing needs. We ended the quarter with 128 stores. On April 3, we opened our Fenton, Missouri store, which will be our second store in the St. Louis market. The store is off to a fast start with traffic performing in the top tier of our stores in April. And on May 8, we will open our fourth store in the Nashville market in the Mount Juliet area. Our other three stores, Pittsburgh and two in Houston are still on plan for Q4 2026 and Q1 2027 opening.

We are excited to announce that we have signed three additional leases that will open -- that will all open this year. We acquired from the American Signature bankruptcy, a store in Fredericksburg, Virginia that will open in late Q3. We will be relocating our Snellville store in East Atlanta, which will increase that footprint by approximately 50% with significantly more drive-by and foot traffic potential. Finally, we will open in McKinney in Northeast Dallas, taking over an existing building that was a former furniture store. Both stores in Atlanta and Dallas will open in Q4. These three new additions to our store growth plans in '26 and early '27 will give us a total of 8 new stores. We have scaled back our remodels from four stores to two stores, allowing us to focus on these new stores in the second half of this year. However, we are still committed to our ongoing refresh of our mattress departments and design centers, which will be completed in all stores by 2027.

Along with this aggressive store growth, we have made the difficult decision to close two additional stores in San Angelo, Texas, which will close in June and in College Station, Texas, which will close in August. Both stores are in markets that do not fit our long-term growth strategies due to demographic shifts, weak housing growth or the level of investment the market would require. We want to thank all our team members who have served the San Angelo and College Station customers over the years. The distribution, home delivery and customer service teams continue to outperform with excellent controls on our back-end costs. These dedicated Haverty team members focus on providing our customers with a world-class experience on each delivery.

The growth that Haverty's will have in 2026 could not be possible without these team members' passion and commitment to furnishing happiness. All our growth will be done within our existing infrastructure, again, allowing us to further leverage these fixed costs.

We are optimistic for the remainder of 2026 for several reasons. Our customer remains resilient during these difficult times. Our aggressive growth plans for this year, our third quarter in a row with positive comps in both written and delivered and our commitment to new products arriving every month, creating excitement for our teams and customers. And we can do all of this because we are debt-free, we value our vendor partnerships. We remain customer-focused. We're providing complementary design services. We offer Haverty branded quality products. We are committed to executing with integrity, and we offer a regret-free experience that gives our customers and team members confidence in the Haverty brand. I would like to thank our 2,400 team members across our 17 states for their hard work and dedication that contributes to Haverty's 141 years of success. I will now turn the call over to Richard.

Thanks, Steve, and good morning. In the first quarter of 2026, we reported net sales of $189.1 million, a 4.1% increase over the prior year quarter. Comparable store sales were up 4.3% over the prior year period. Our gross profit margin increased 30 basis points to 61.5% from 61.2%. Excluding the impact of the $524,000 LIFO expense in Q1 of 2026 and the $24,000 LIFO expense in the prior year quarter, our adjusted gross profit margin increased 60 basis points to 61.8% from 61.2%.

Selling, general and administrative expenses increased $4.1 million or 3.8% to $111.3 million. As a percentage of sales, these costs approximated 58.9% of sales, down from 59% in the prior year's quarter. We experienced increased selling, occupancy and administrative costs during the quarter. Other income expense for the first quarter of 2026 was $53,000 and interest income was approximately $967,000 during the first quarter of 2026.

Income before income taxes increased $667,000 to $6 million. Our tax expense was $1.7 million in the first quarter of 2026, which resulted in an effective tax rate of 28.5% versus 28.6% in the prior year period. Net income for the first quarter of 2026 was $4.3 million or $0.26 per share compared to net income of $3.8 million or $0.23 per share in the comparable quarter last year. Now turning over to our balance sheet.

At the end of the first quarter, our inventories were $106.9 million, which was up $10.7 million from December 31, 2025, and up $18.2 million versus Q1 2025. At the end of the first quarter, our customer deposits were $40.4 million, which was up $4.9 million from the December 31, 2025 balance and down $2.3 million from the Q1 2025 balance. We ended the quarter with $107.5 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q1 2026. Looking at some of our cash flow usage.

Capital expenditures were $7 million for Q1 2026, and we paid out $5.3 million of regular dividends during the quarter. We purchased $2 million of common stock during the quarter at an average price of $21.97, and we have approximately $16.4 million of existing authorization under our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'll highlight a few, but please refer to our press release for additional commentary.

Our 2026 guidance reflects tariffs currently in effect as of May 5, 2026. We are closely monitoring the tariff developments to manage our exposure and minimize the impact on our business. We expect our gross margins for 2026 to remain between 60.5% and 61%. 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 2026 are expected to remain in the $307 million to $309 million range.

The increases over 2025 are primarily related to store growth and modest inflation. The variable type costs within SG&A for 2026 are expected to remain in the range of 18.6% to 18.8%. Our planned capital expenditures for 2026 is $34 million, an increase of $0.5 million from our previous guidance. 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 systems technology are expected to be approximately $3.1 million.

Our anticipated effective tax rate in 2026 remains 26%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the first quarter financial results. Operator, we would like to open up the call for questions at this time.

[Operator Instructions]Our first question comes from the line of Cristina Fernandez with Telsey Advisory Group.

I wanted to see if you can speak a little bit more about the consumer and demand trends through the quarter, how they progressed by month and whether you're seeing any changes in behavior, whether consumers taking you up more on financing options or any other changes in behavior up or down?

Sure. Cristine, this is Richard. Let me start and then Steve can finish. In terms of the written business trend for the quarter, in January, we were up high single digits, almost 9%. February and March, we were mid-single digits between 5% and 5.5%. So for the quarter, we were up 6.4%. Steve mentioned in his commentary a little bit about financing costs. You saw the G&A was up a little over $4 million. About half of that increase was related to selling costs and of the selling cost, 60% related to third-party credit costs. So it was over $1 million up over the quarter. So we're going to continue to be somewhat aggressive in that regard to be competitive in the marketplace. But Steve, do you want to.

Yes. And I don't think we've seen any real change, Cristina, from really when we started using the 60 months again last Labor Day is when we really started implementing it in our promotions. And so I think we still have about the same usage on credit where we go with it. It's just doing a little bit more volume and it's costing us a little bit more. What's being used there with our bigger tickets is getting into the 60 months and the more expensive part of the financing side of things.

And then the second question I had was based on the consumer demand you see today or year-to-date and your plans for the back half, whether it's some product or store opening, how do you feel about the ability to comp positively in the second half of the year when you're lapping 7%, 8% increases last year?

I won't go with my statement I said, Cristina, we feel optimistic for the remainder of the year for all those reasons we said. I mean, we feel our customer is very resilient. We like our aggressive growth plans that we have coming and a lot of those are going to open up on the back half of the year. Most majority of them are going to come in Q4. But obviously, we do -- we have two that we're opening this quarter, 1 in Q3 and the remainder will be in Q4. And then again, we're excited about with the new merchandising team and the new products that are arriving and getting on the floors. And we feel like we're positioned in the right place. So we feel good. We feel optimistic about it even with all the headwinds that we've got out there in front of us.

And then last one, just to clarify on the store openings. Of the eight openings, I think you mentioned some were in 2007 and then there were two store closures. So net for 2026, do you still expect five openings? Or is the number going to come a little bit below that?

If you take -- we're going to have one store that we've had a little bit of construction delays in Houston. It's going to push into early '27. So the eight store openings, we will -- one of those stores will be a relocation of the Snellville store in Atlanta. So ultimately, there are eight new stores, four closings. I'm talking about the additional closing we had in Q1 in Alexandria. So the net right now is four stores growth. for the year. If you take in the one that's going to push into '27. But if you look at the year itself, we'll -- it looks like seven openings and four closures. It will be three openings for the year.

Our next question comes from the line of Anthony Lebiedzinski with Sidoti.

So Steve, you mentioned that you're excited about some of the new product introductions that are coming out there. Is there anything you want to highlight specifically as far as any -- whether new products or product categories that you think will be certainly incremental to the business?

Yes. Anthony, I think it's more about just continuing, as I said, about us being nimbler with our line and our product assortment is recognizing things that are not working and getting in things that are more on trend, we feel like, and the merchants feel that will be a nice replacement. We're taking some small steps in some categories, but they're smaller categories, barstools. We're going after more of our chairs, accent chairs to go along with our strong upholstery lineups that we're having to create more special order opportunity there. But really, it's just more about being fresh with the lineup, being quicker with the lineups and getting them out there for our sales team and design teams.

Got you. Okay. And then you talked about your design program being up more than 200 basis points as a percentage of overall written sales. as far as that's concerned, I mean that was a meaningful improvement from '25. Did you guys do anything differently in terms of your marketing messaging? Or -- and kind of how do you think about the rest of the year as far as being able to further expand on that design business?

Yes. We haven't done anything different. We just continue to emphasize it and make sure we're putting it in front of our customers as much as possible. I did mention that we're talking about refreshing our design centers within our stores. We have gotten that done probably in about 1/3 of our stores so far. We hope to get it done. So we have over half completed this year and the remainder will be done next year. But we have a lot of confidence in it. I think there is still upside with our design business, and it could approach 50-plus percent of our sales. I mean I think we have an opportunity to still grow that. We're doing a really good job there, and it's really good to see with the build in average ticket. And especially when we get into the home, we're getting up more than 3x what our normal average ticket is once we get in the home. So we're really excited about what the opportunity there is for 2026.

Got you. And then as far as the gross margin guidance, just wanted to be clear as far as the -- any potential tariff refunds. Are you including anything, Richard, in that number? Or will those be incremental potentially?

Yes, those would be incremental potentially. So we have indirect and direct business. And so we will book that if and when we get it.

Understood. Okay. And then last question for me. So you guys touched on this a little bit, but fuel prices have gone up quite a bit certainly since you last provided guidance in late February, which was just a few days before the Iran conflict started. You talked about, obviously, a little bit about that. You also have higher financing costs, but yet you are able to maintain your SG&A expense guidance. So what are some of the offsetting factors that are enabling you to maintain your expense guidance even with some of the headwinds as it relates to fuel prices and financing costs?

Yes. I'd say on the back side of this year, we expect to see some leveraging of delivery and transportation costs in the back half of the year. So that's the big mover on the variable piece. And on the non-variable, we've already kind of baked in the advertising occupancy costs, depreciation, those things are already baked in. So we -- those remain unchanged.

We're hoping the fuel thing is not a long-term process, Anthony. We're hoping to see that mitigate over time when you get this war brought to an end.

And then the portion of the fuel costs that hit gross margins, we were 61.5%, and you know what our margin guidance is. So we've kind of baked in a bit of a cushion there, and that's why we left our gross margin guidance alone.

We have no further questions at this time. Ms. Hinkle, I'd like to turn the floor back over to you for closing comments.

Thank you for your participation in today's call. We look forward to talking with you in the future when we release our second quarter results. Have a good afternoon.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to Haverty's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tiffany Hinkle, Assistant Vice President of Financial Reporting, Investor Relations. Thank you, you may begin.

Thank you, operator. Good morning, and thank you for joining our fourth 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 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.

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.

Good morning, and thank you for joining our 2025 fourth quarter and 2025 year-end conference call.

We are excited to report an increase in both written and delivered comp sales for Q4, marking our second consecutive quarter of positive comps. Our net sales for Q4 were $201.9 million, which was up 9.5% with comps up 8.2%. Total written sales were up 3.5% with comps up 3.2%. Gross margins for the quarter came in at 60.4% versus 61.9% last year. However, we did incur $3.9 million in LIFO charges during the quarter.

Pretax income for the quarter was $10.8 million or 5.3% operating margin versus $9.6 million or 5.2% operating margin, resulting in a $0.51 a share versus $0.49 a share. For the calendar year 2025, our net sales came in at $759 million, which was up 5% with comps up 2.1%. Gross margins for the year were flat with last year coming in at 60.7%, including $4.6 million in LIFO charges. Pretax profits were $26.8 million or 3.5% operating margin versus $26.2 million or 3.6% operating margin, resulting in $1.19 a share, which was flat with last year. Richard will provide additional details regarding our SG&A expenses and LIFO impact in his discussion.

During the quarter, we saw our written sales fall off as the quarter progressed. However, it was nice to see our after Thanksgiving sales up 6.2% with strong average ticket in design at approximately $8,500 and our overall average ticket at $4,400-plus. For Q4, our average ticket increased 10.9% to $3,759 with design average ticket growing 11.9% to $8,072. Our design business accounted for 33.3% of our sales, driven by our upholstery special order business up 14.8%. Traffic for the quarter followed our written sales trend during the quarter, ending with a decrease in the low single digits for the quarter overall.

It is important to remember for comparison purposes that we had just experienced our first positive traffic increase in November and December of 2024 following the presidential election in several years. Conversion rates remained slightly down for the quarter. For the calendar year, our written business was up 2.8% with comps up 0.7%. Our average ticket came in at $3,530, up 4.7%, and our designer average ticket was $7,781, up 9.7%. Traffic was up in the mid-single digits with conversion rates continuing to show improvement.

Our merchandising and supply chain teams continue to partner with our outstanding vendors to ensure that our products are flowing consistently to avoid any disruptions for our customers. Our merchandising team continues to challenge our assortment to make sure that we are testing new styles, new colors, new price points and new categories, which creates excitement for our teams and customers by helping to differentiate ourselves from our competition.

From a category perspective, for the quarter, bedroom and upholstery were up mid-single digits, followed by occasional up low single digits; and dining, mattresses and decor coming in flat. Our inventories are in a great position as we continue to focus on having best sellers in stock for immediate gratification for our customers. At year-end, our inventories were up $12.7 million versus last year to $96.2 million. We do expect to see this drop over the next 6 months as we had to get in front of some of the most recent tariffs in Q4 with our inventory purchases and new product arrivals.

We did get some good news late December when the administration delayed the additional 5% tariff on Section 232 upholstered wood furniture, leaving it at 25%. However, last Friday, we finally heard from the Supreme Court as they ruled that the IEEPA tariffs were illegal. As we heard over the weekend from the administration, and we verified this morning effective at 12:01 a.m. today, a 10% worldwide tariff has been issued through Section 122 of the 1974 Trade Act.

This tariff to understanding will replace the IEEPA tariffs and the fentanyl tariffs and these Section 122 tariffs are not stackable on Section 232 tariffs or applicable under the current USMCA agreement; however, they are stackable with the Section 301 tariffs. Haverty's will be thoughtful and deliberate in our approach with the continuing tariff adjustments so that we have a minimal impact on our customers, team members and shareholders.

Our marketing, creative and media plans continue to resonate with our customers through broadcast, connected TV and digital marketing channels. We saw web traffic and key site engagement increased double digits year-over-year, contributing to our in-store success, and our written e-commerce sales increased 12.3% for the quarter.

We ran our second direct mail campaign in late October in preparation for the after Thanksgiving shopping period. It was a 16-page piece mailed to approximately 750,000 new customers that highlighted our product assortment and design capabilities. We refined our targeting models based on results from the first campaign and added pricing, which we believe helped contribute to an improved conversion rate.

Our marketing dollars were down slightly for the quarter as a percent of net sales, as we were able to leverage the increase in sales. We continue to emphasize 60 months no interest for competitive reasons in our promotions, creating an increase in our credit costs for the quarter. However, these credit costs remained slightly down for the year.

We ended the year at 129 stores, but already have plans for 5 new stores in 2026. Four of the stores have been announced in St. Louis, Nashville and 2 in Houston. We are excited to announce today that we will be entering Pennsylvania, which will be our 18th state. We will open in Q4 in North Pittsburgh across from the Ross township mall. We are currently in lease negotiations on several other locations that we hope to be able to announce by next quarter's call.

The opening of 5 new stores in 2026, along with 4 planned remodels, a refresh of the mattress and design areas in our stores, of which approximately 35% will be done, will push our CapEx budget to around $33.5 million, which Richard will cover in more detail.

After careful evaluation, we have decided to close our Alexandria, Louisiana, location in March. This decision to close was driven by significant demographic shifts in the market, stagnant housing growth and the need for a major remodel. We wanted to thank all our team members who have served the Alexandria customers and surrounding markets for over the 40-plus years. Our dedicated distribution, home delivery and customer service teams continue their wonderful work serving our customers across our 17, soon-to-be 18 states. All of our new store growth will be served by our current distribution network, requiring no new investments.

The ability of the teams to adjust the business to the current demands is outstanding, allowing us to provide our customers with a memorable experience on each and every encounter. The industry continues to face ongoing challenges. But even with all the uncertainty, our optimism remains high as we rebounded in 2025, feeling like we hit an inflection point in Q3 with the momentum continuing into Q4.

Our push in 2026 is to continue our focus on testing new ideas and processes along with continuing our organic store growth. Thank you to all our Haverty team members for your dedication to our customers and our company's success. Our people define us, and I am proud to be a part of this great team. I want to continue to repeat that our debt-free balance sheet, our Haverty-branded products, our operational consistency, our integrity, our consumer focus, our design services, our commitment to quality and our regret-free experience provides our customers with the comfort and confidence to know that furnishing their homes with Haverty's is a great long-term investment.

I will now turn the call over to Richard.

Thank you, Steve, and good morning.

In the fourth quarter of 2025, net sales were $201.9 million, a 9.5% increase over the prior year quarter. Comparable store sales were up 8.2% over the prior year period. Our gross profit margin decreased 150 basis points to 60.4% from 61.9%. Excluding the impact of the $3.9 million LIFO expense in the fourth quarter of '25 and the $925,000 LIFO pickup in the prior year quarter, our adjusted gross profit margin increased 100 basis points to 62.4% from 61.4%.

Selling, general and administrative expenses increased $6.6 million or 6.3% to $112.5 million. As a percent of sales, these costs approximated 55.7% of sales, down from 57.4% in the prior year's quarter. We experienced increased selling, occupancy and administrative costs during the quarter. Other income expense in the fourth quarter of 2025 was $29,000, and interest income was approximately $1.2 million during the fourth quarter of 2025.

Income before income taxes increased $1.2 million to $10.8 million. Our tax expense was $2.3 million for the fourth quarter of 2025, which resulted in annual effective tax rate of 26.5% for the year. Net income for the fourth quarter of 2025 was $8.5 million or $0.51 per diluted share on our common stock compared to net income of $8.2 million or $0.49 per share in the comparable quarter last year.

Now turning to our balance sheet. At the end of the fourth quarter, our inventories were $96.2 million, which was up $12.7 million from December 31, 2024, and up $3.7 million versus Q3 of 2025. At the end of the fourth quarter, our customer deposits were $35.5 million, which was down $5.2 million from the December 31, 2024, balance and down $8.4 million from the Q3 2025 balance. We ended the quarter with $125.3 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q4 of 2025.

Looking at some of our cash flow usage. Capital expenditures were $4.4 million for Q4 2025 and $19.7 million for the calendar year. We also paid out $5.3 million of regular dividends in the quarter and $20.8 million for the calendar year. We purchased $2.8 million of common stock during the quarter at an average price of $22.63. During the calendar year, we purchased a total of $4.8 million of common stock, representing 216,482 shares.

On February 20, 2026, our Board of Directors approved an additional $15 million authorization for our share buyback program. We currently have approximately $18.3 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements, including our future expectations of certain financial metrics. I will highlight a few, but please refer to our press release for additional commentary.

On February 20, 2026, the Supreme Court invalidated certain tariffs imposed by the administration under the International Emergency Economic Protection Act during 2025. The administration announced its intentions to impose new tariffs under different regulations. Our 2026 guidance includes the impact of the new tariffs announced by the administration. We continue to monitor tariff developments and assess their potential impact on our business.

We expect our gross margins for 2026 to be between 60.5% and 61%. 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 2026 are expected to be in the $307 million to $309 million range. The increases over 2025 are primarily related to store growth and modest inflation. The variable-type costs within SG&A for 2026 are expected to remain in the range of 18.6% to 18.8%.

Our planned CapEx for 2026 is $33.5 million. Anticipated new or replacement stores, remodels and expansions account for $27.2 million. Investments in our distribution network are expected to be $3.2 million, and investments in our information technology are expected to be approximately $3.1 million. Our anticipated effective tax rate in 2026 is expected to be 26%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation.

This completes my commentary on the fourth quarter financial results. Operator, we would like to open up the call for any questions at this time.

[Operator Instructions]. First question comes from Anthony Lebiedzinski with Sidoti & Company.

Certainly nice performance here in the fourth quarter. Can you first just start us off with just some further details about your same-store sales trends throughout the quarter? If you could just kind of walk us through October through December, provide some additional color on that?

Sure. So in terms of the trend for the business. In terms of written business, we were up high single digits in October. We were -- in November, we were middle single digits up. In November and December, we were down low single digits. In terms of deliveries, we were up 10% in October, mid-single digits in November and up almost 15% in December.

That's very helpful. Okay. And then -- so I guess the other thing is as we look at the guidance for variable SG&A expenses for '26, it implies essentially flattish percentage from '25. You've talked about some sales momentum here that you had. I know there was a deceleration in the last month of the quarter, but nevertheless, the second consecutive quarter of positive same-store sales. So maybe if you could just kind of walk us through the different puts and takes in terms of what's affecting the variable component of your SG&A outlook for '26?

Sure. Anthony, so we came in, I believe, at 18.9% for the fourth quarter. We felt good about our guidance for 2025 being between 18.6% and 18.8%. Looking at this year, we felt like we needed to keep it in line, even though we anticipate having some leverage, we do anticipate having basically higher pressure on the selling cost in 2026 with higher sales commissions, and we need to remain competitive, so there could be some additional third-party credit costs going to the next year. So we wanted to keep that basically flat as a percentage.

And then you noticed on the gross profit margins, we increased those. We had some significant pressure this year, as we called out in the press release, related to LIFO. As prices stabilize in 2026, we don't anticipate having that level of pressure. So we felt some confidence with our gross profit margin guidance going up.

And then just overall, with the nonvariable piece. I mentioned in my remarks, that was primarily store growth and inflation. So I think that if you take to the -- we ended at $298 million and the middle of the estimate is $308 million, it's about a $10 million spread. About 40% of that increase is going to be occupancy cost as we grow the business and the rest is around about a 2% modest inflation on wages and incentives. And we don't really anticipate a great deal more of advertising cost. I think most of the pressure on the nonvariable is in occupancy costs and then just overall inflation with wages and insurance, et cetera.

That's very helpful. Okay. And then so with the evolving tariff environment, how do you guys think about as far as any additional potential new pricing actions? Is there anything already in the works or are you going to be holding off for now? Just wondering if you could speak to that?

Yes, Anthony, this is Steve. We're going to be very deliberate in that process. Obviously, our current inventories already have the tariffs baked in them. So we've got to work through those inventories as well before we get any impact of the new tariffs and if they're -- how sustainable are they, right? I mean, we've already -- it's 10% now, but obviously, over the weekend, we talked about it going -- administration, moving it to 15%.

Is that going to happen? When that will happen? So at this point, there's not going to be any actions or reaction off of it. We're going to wait and see how it kind of plays out over the next few months and as we work this inventory through.

Got you. And my last question here. So as we look to update our quarterly models, is there anything that we should be aware of in terms of seasonality or timing of expenses or anything related to recent weather events that you guys need to call out? Just would love to hear your thoughts on that.

I'll say it and Richard can jump in here. I would say no, Anthony. And as far as weather events, we always have snow and weather in January and February, so that's not something that's unusual. So I don't see anything that would be a call out.

Your next question comes from Cristina Fernandez with Telsey Advisory Group.

I wanted to follow up on the tariff question. If the tariff goes to 15% from 10%, does that change the gross margin guidance you gave in perhaps a little bit more color on the timing of the inventory you have today, the tariff rate that was in effect in the fourth quarter, how long will it take to work through that inventory? Are we mostly looking at the first half or a little bit longer?

Yes. As far as the guidance, I don't see there being any changes. We've got that baked in as to where it is, whether it's 10% or 15%, Cristina, as far as going forward. And then as far as working through the inventory, I think it will take us the first half of the year. But we will be strategic about it and if there are things that we need to address to be competitive in certain price points, we will move on those.

But again, we will move on those and still be able to maintain the guidance that we've given on the margins as far as going forward. But we feel like at this point, it will be -- the current inventory where we are, probably we'll work through the first half of the year, and then we'll bring in, obviously, the newer inventory, the newer cost. And again, this new tariff is only for 150 days, so it expires on July 24, and we know the administration is aggressively looking at other alternatives under Section 232, Section 301 and how they can get further increases in the tariffs. So time will tell.

And then I wanted to ask about the trends in the quarter that you talked about, specifically the written order trends that they decelerated a bit. Do you feel it's more a function of the year-over-year comparisons? Or do you notice any change, I guess, on the underlying, I guess, consumer behavior as you look at your regions or traffic or kind of what consumers were looking for when they came into the stores?

I don't think there's any specific, but I will tell you, I don't think the government shutdown helped us. Being shutdown for almost 45 days-or-so, that didn't set a good precedent as we move forward and kind of created some unknowns out there. But we talked about traffic. When we compare back to '24, Cristina, we were up double digits in traffic in November and December of '24. So we're not concerned about the traffic, and we were not overly concerned.

We were excited about the average ticket that we were able to continue to drive up, and we were able to drive it through design. We're actually seeing an increase in design and the number of pieces per ticket. So that's encouraging as we go forward. So nothing that is -- would be a call out or alarming to us in the overall trend. And obviously, we're happy with the numbers overall.

And then my last question is regarding the mattress, the bedding refresh program. I think you tested it at a couple of stores. So can you talk about the lessons you've gotten and the stores that you tested it? And I guess what's changing the most? Is it the presentation, the merchandising? Maybe a little more detail on what consumers will see as you go through that program.

Yes, it will take us to get through all the stores into next year to complete. As I said, we're doing about 35% of the stores this year where we do the mattress and design centers. We have seen traction with our bedding, an improvement. And I think more of it is more about -- it's more informational. It's easier for the consumer to understand what they're looking at with each mattress set, and it's also easier for our sales consultants on the information needed to provide for that customer.

So it's just a better presentation. I think it calls out the brands, puts it more in the consumer's face when they come into the store, makes them aware that we're in the business where before we were a little subdued in our presentation. So I think calling out the brands has certainly helped attract the consumer attention to that area. And I do think -- I think some of the recent reports showed the mattress business -- some of the people have reported already that the mattress business was down in the fourth quarter in the mid-single digits, if not higher, and we were flat. So we feel good about our traction that we're having and in especially the stores that have gotten the redone bedding departments.

And the last question I had was on the marketing and advertising side. You made some investments and changes through 2025. I mean I think you said fourth quarter spending was down, so as we look at 2026, do you expect, I guess, marketing and advertising to be flat as a percentage of sales? Or how should we think about those -- that expense item and investments there?

Yes. In '25, we increased our advertising. I think it's up about $4 million for the year. And that was because we cut it too much in '24. But we do feel like we're at that level. And in 2026, we anticipate our marketing spend to be flat with 2025.

I would like to turn the floor over to Tiffany Hinkle for closing remarks.

Thank you for your participation in today's call. We look forward to speaking with you in the future when we release our first quarter results. Have a great day, everyone.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Greetings, and welcome to Haverty's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tiffany Hinkle, Assistant Vice President, Financial Reporting and Investor Relations. Thank you. 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, Steven 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 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. 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.

Good morning. Thank you for joining our 2025 third quarter conference call. We are excited to report an increase in both written and delivered comp sales for Q3. Our sales for Q3 were $194.5 million, which was up 10.6% with comps up 7.1%. Total written sales were up 10% with comps up 8%.

Our steady growth in written and delivered sales over the past 4 quarters reflects improvements across marketing, merchandise assortments, promotions, supply chain, distribution, home delivery, service and store execution. While this quarter's results are positive, we remain focused on the significant opportunities in front of us that will allow our return to a $1 billion-plus company with no additional investments needed in our distribution infrastructure.

Gross margins continue to be strong, coming in at 60.3% compared to 60.2% in Q3 2024. Our 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. Our EPS for the quarter came in at $0.28 compared to $0.29. Richard will provide additional details regarding the increase in SG&A expenses and LIFO impact for the quarter.

During the quarter, our Labor Day event was the company's largest event of the year and was key to our success in the quarter. We had a terrific written 4-day increase of 13.6% over last year with strong metrics. Traffic was positive in the mid-single digits. Average ticket grew to over $4,000 with design average ticket over $8,000. And conversion rates showed a slight -- although conversion rates did slow a slight decrease compared to last year.

The industry faces ongoing challenges. High interest rates and rising home prices continue hurting the housing market. Tariffs remain an issue, geopolitical tensions persist, consumer confidence is falling and the government shutdown is now heading into week 5. Recent and planned interest rate cuts have yet to lower mortgage rates or boost the housing sector. Despite these pressures, our customers with household incomes over $150,000 are still spending, giving us confidence for the rest of 2025 and into 2026.

Traffic for the quarter stayed positive with growth in the mid-single digits compared to last year. The average ticket increased 6.1%, reaching $3,668 and the designers average ticket rose 11.9% to $7,986. Our design business remained robust, accounting for 34.2% of sales, driven by a 7.1% increase in upholstery special orders.

Conversion rates for the quarter showed continued improvement over Q2, finishing the quarter down slightly in the low single digits. Our merchandising and supply chain teams have done a great job moving much of our production out of China during the quarter, so we could resume our special order business.

The announcements of potential new tariffs on furniture by the administration in late August was disappointing. Ultimately, these new tariffs were finalized at 25% on all upholstered wood products out of Mexico, along with Vietnam, Cambodia, Thailand and Indonesia beginning October 14, but will be moving to 30% beginning January 1, 2026.

Our merchandising and supply chain teams have worked with our vendors to secure pricing to not disrupt any shipments. As with previous price increases, we will adjust retail prices strategically to maintain our values and margins. We appreciate our vendors' collaboration in helping us deliver strong values to our customers. The positive out of these new tariffs is that they are not stackable on the existing reciprocal tariffs put in place back in the summer. We are monitoring the administration's current trip to Asia and the upcoming Supreme Court decision to see what the impact will be on tariffs going forward.

The new merchandising team has now been in place for a full year, and we are starting to see their impact on our product assortments. We just brought our store management team from the field to Atlanta for a 3-day leadership event at the end of September to celebrate our 140th anniversary and to show them in person the new products arriving over the next 6 to 9 months. The merchandising team did a fabulous job presenting the new products, creating lots of excitement for our store management to take back to their teams.

From a category performance, all categories showed nice increases during the quarter. Bedroom and bedding outperformed all categories with increases in the low to mid-double digits, followed by upholstery and occasional in the high single digits and dining room and decor in the mid-single digits. Our inventories have remained basically flat in Q3 compared to Q2 this year. We anticipate that inventories will increase slightly in Q4 due to the additional tariffs implemented in October.

Our marketing creative and media plans continue to resonate with our customers through broadcast, connected TV and digital marketing channels. Our expanded use of AI and data has improved our targeting and personalization, making our marketing investments more efficient. And we saw web traffic, including organic and site engagement increased by double digits as our written e-commerce sales grew 13.6% for the quarter.

We invested an additional $2.8 million this quarter in marketing, including our first direct mail campaign in several years. The direct mail piece proved to be very successful in attracting new customers to Haverty with a 12-page layout that showcased our product offerings and design capabilities. We continue offering 60-month no interest financing to remain competitive, and our credit costs continue to remain in line with last year.

We completed the closing of the Waco store at the end of September. However, we are pleased to announce the opening of our third store in the Houston market in mid-October. The new store is in New Caney, which is in the northeast part of Houston. This will bring our store count back to 129, which is where we will end the year. We will return to our store growth goals of 5 per year in 2026.

As stated on our last call, we have finalized 4 additional leases for 2026 openings in St. Louis, Nashville and 2 more in Houston. We have 1 new market and 1 relocation in the LOI process now, but are unable to announce. We will make investments in our stores throughout 2026 in the bedding departments and design centers to maintain our focus on improving the customer experience.

Our distribution, home delivery and customer service teams continue to do a fantastic job controlling expenses while furnishing happiness to our customers. The management teams are great at balancing the number of team members with the workflow demand needed due to natural turnover. We continue to believe that due to Haverty's controlling the final mile delivery with Haverty team members, it is a huge advantage to our success in providing our customers with unwavering service.

Thank you to all our Haverty team members for your dedication to our customers and the company's success. Our people define us, and I am proud to be a part of this great team. With a debt-free balance sheet, operational consistency, integrity, consumer focus, in-home design services and our regret-free experience, Haverty's offers confidence to our customers to furnish their homes with the Haverty brand.

I will now turn the call over to Richard.

Thank you, Steve, and good morning. In the third quarter of 2025, net sales were $194.5 million, a 10.6% increase over the prior year quarter. Comparable store sales were up 7.1% over the prior year period. Our gross profit margin increased 10 basis points to 60.3% from 60.2%. Excluding the impact of the $624,000 LIFO expense in the third quarter of 2025, our gross profit margin would have been $0.606. The overall increase in margins was due to product selection and merchandising, pricing and mix.

Selling, general and administrative expenses increased $11.4 million or 11.3% to $112.3 million. As a percentage of sales, these costs approximated 57.8% of sales, up from 57.4% in the prior year's quarter. We experienced increased advertising, selling, occupancy and administrative costs during the quarter.

Other income expense in the third quarter of 2025 was $348,000 and interest income was approximately $1.1 million during the third quarter of 2025. Income before income taxes decreased $400,000 to $6.4 million. Our tax expense was $1.7 million for the third quarter of 2025, which resulted in an effective tax rate of 26.4% compared to an effective tax rate of 28.3% in the prior year period. Net income for the third quarter of 2025 was $4.7 million or $0.28 per diluted share of our common stock compared to net income of $4.9 million or $0.29 per share in the comparable quarter last year.

Now turning to our balance sheet. At the end of the third quarter, our inventories were $92.4 million, which was up $9 million from the December 31, 2024 balance and up $3.7 million versus the Q3 2024 balance. At the end of the third quarter, our customer deposits were $43.9 million, which was up $3.1 million from the December 31, 2024 balance and flat with Q3 of 2024. We ended the quarter with $130.5 million of cash and cash equivalents, and we had no funded debt on the balance sheet at the end of the third quarter of 2025.

Looking at some of our cash flow usage. CapEx was $3.6 million for Q3 2025, and we also paid out $5.2 million of our regular dividend in the quarter. We did not purchase any common shares of stock of our share repurchase program during the third quarter of 2025, and we have approximately $6.1 million of existing authorization in our buyback program.

Our earnings release list out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'll highlight a few, but please refer to our press release for additional commentary. Our 2025 guidance includes tariffs currently in effect as of October 29, 2025, and does not include the effect of additional proposed tariffs that have not been finalized by the Trump administration.

We expect our gross margins for 2025 to be between 60.4% and 60.7%. 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 2025 are expected to be in the $296 million to $298 million range, an increase from our previous guidance due to higher anticipated advertising and admin costs. The variable type costs within SG&A for 2025 are expected to be in the range of 18.6% to 18.8% based on our expected level of selling costs for the remainder of the year.

Our planned CapEx for 2025 remains at $24 million. Anticipated new or replacement stores, remodels and expansions account for $19.6 million. Investments in our distribution network are expected to be $1.8 million and investments in our information technology are expected to be approximately $2.6 million. Our anticipated effective tax rate in 2025 is expected to be 26.5%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation.

This completes my financial commentary on the third quarter financial results. Operator, we would like to open the call up for any questions.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti & Co.

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?

Sure, Anthony. This is Richard. 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.

No. Anthony, there was not much difference there. We certainly had probably more strength in the Midwest, Georgia, Central and Florida were -- and Texas were really good. The East was a little lighter, but everybody was positive. All districts were positive across the board.

That's good to hear, certainly. 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?

Anthony, 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.

Yes. Thanks. I did mention in my remarks about the impact of LIFO expense on our gross margins. So we are seeing as the tariffs -- as that material comes in, in the third quarter, and it will continue to come in the fourth quarter, you'll see our LIFO expense go up. So I believe last year, we had a LIFO benefit of around $800,000 for the year. So far this year, we have LIFO expense for the first 3 quarters of about $750,000. So I would expect to continue to see some more LIFO expense roll through the P&L throughout this year and probably into next year.

But Anthony, I don't -- we don't see that as an impact. We've been able to grow sales, and we've changed the prices and maintain our margin. So we feel good about where we're going in the direction we're taking with it, how we're handling it.

Understood. Okay. Got you. Okay. And then just in terms of your expense guidance, I know you talked about higher advertising and administrative costs. How should we think about those for next year? Do you think that trend will continue? Or just overall, just wondering if you could comment on what you're seeing in terms of cost of running the business?

Yes. I'd say for this year, we went up maybe about $5 million band on our non-variable costs from the last quarter to this quarter for the year. About 3/5 of that was advertising cost. The rest is on the administrative cost is more incentive compensation. This year, we are hitting our annual targets in our incentive plans. Last year, we were not. So it's kind of a tough comparison. We have not developed our full budget for next year, but I would expect basically normal inflationary type increases, nothing significant to note in the non-variable side of the business.

Anthony, let me speak to the marketing specifically. In '24, we basically pulled back too hard. We were experiencing some double-digit decreases in written. We're trying to manage the business. We had an election going on. And we basically -- if you remember from Q2, we increased our marketing expense. I think it was about $1 million. We upped that -- in the third quarter as well. We felt to levels that it needed to be. And I might want to remind you of that $2.8 million. About half of it is due to the Houston market is now new to us, and we're investing more advertising as we led to that -- our third store opening there. And then obviously, we also returned to direct mail, which we think is a key part of our direction going forward. So we have one event now that's out in the fourth quarter as well right now. So -- but I don't see marketing. I think we've gotten it back to levels that we can sustain. And I think for 2026, we'll be fairly flat with where we are in '25.

Our next question comes from Cristina Fernández with Telsey Advisory Group.

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?

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.

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?

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.

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?

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.

Yes. And as I commented on the marketing, Cristina, we're going to keep that. We think it will be fairly flat in '26 to '25. So that will be an opportunity to leverage as well. We can continue to get the growth.

There are no further questions at this time. And I would now like to turn the floor back over to Tiffany for closing comments.

Thank you for your participation in today's call. We look forward to talking with you in the future when we release our fourth quarter results. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.