by Average tickets continue to increase, yet ongoing tariffs and increased transportation costs continue to put pressure on the retailer’s bottom line
ATLANTA — Havertys’ latest earnings report had plenty of positives, not the least of which was the near doubling of its net income compared with last year, along with its fourth consecutive quarter of increased written and delivered comp sales.
According to the company’s latest financial statement, overall sales totaled $194.9 million, up 7.7% from the prior-year quarter. Meanwhile, thanks partly to some $2.1 million in tariff refunds, net income totaled $5.3 million, or 32 cents per share, compared with $2.7 million, or 16 cents per share, the same period last year.
Total written sales were up 12.6% compared with last year while comp-store written sales were up 12.3%, noted President and CEO Steve Burdette, who also pointed to a 9.7% increase in business for Memorial Day weekend and a 14.1% increase in the two-week period leading up to its promotion.
The retailer also reported ending the quarter with a $4 million increase in customer deposits to $43.3 million from the same period last year and up $7.8 million from year end, plus $104.3 million in cash and cash equivalents and no funded debt. Inventories also declined to about $100.5 million at the end of the second quarter from nearly $107 million at the end of Q1.
During its conference call, Burdette and Richard Hare, executive vice president and chief financial officer, spoke of the factors that led to its success, not the least of which was a 14% increase in the average ticket to more than $3,800.
By comparison, the average design ticket, Burdette noted, was up 15.7% to more than $8,800. Design business, he noted, accounted for 36.5% of the business during the quarter, as it is driven by custom orders, which rose 23%.
“Customers love being able to choose exactly the right fabric or leather in their preferred color from our vast assortment,” Burdette noted, adding that “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 addition, the company detailed store expansion plans, including two new stores opened during the quarter in Nashville and St. Louis and six new store openings in the second half, including Pittsburgh, marking its entry into Pennsylvania, its 18th state.
Five others are planned including three in Texas (McKinney, Baytown and Richmond) and two relocations that include Fredericksburg, Virginia, and Snellville, Georgia.
The $2.1 million in tariff refunds related to its direct imports also gave a boost to the bottom line, with $1.5 million recorded as a reduction to the cost of goods sold, $140,000 recorded as a reduction in inventory and $67,000 recorded as interest income, according to Hare. He noted that the company is in negotiation to receive additional refunds on indirectly sourced products from third parties, although he doesn’t see this adding up to more than $1 million to $1.5 million.
“Negotiations are in progress right now to determine what amount we’ll get,” Hare said of the multiple parties involved in the discussions. “It could be two or three more parties involved with this. Some of our vendors incurred legal fees so that could impact the amount.”
Yet despite the refunds, ongoing tariffs and other cost factors remain headwinds. The industry now faces 10% to 12.5% Section 301 tariffs, as well as 25% Section 232 tariffs on upholstery.
Transportation costs also remain a key issue. Burdette noted that in the middle of this month, the company anticipates an estimated 25%-30% increase in container rates tied to increased bunker fuel rates. He added that if diesel fuel remains above $5 a gallon because of continued geopolitical pressures, the company will continue to see increases in its transportation and delivery fuel expenses through year end, which will likely impact product input costs for the remainder of the year.
Obviously, how the company manages these expenses will determine its success. It’s certainly good news that designers and their clients are driving business, particularly with tickets nearing $9,000. Still, even upper-end consumers have a limit to their spending.
That said, the everyday consumer seeking quality furniture at a value also is on a budget. How good a job the company does providing value to customers of every income bracket will determine not only how well its new stores perform, but also the existing stores in the other 17 states it serves.
Burdette said that the company expects the tariff refunds already received along with potential refunds from third-party suppliers to help offset some of the aforementioned 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%-61%, excluding any additional tariff refunds,” he said. “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,” he added, noting that new customers typically spend 50% more than a repeat customer.
Yet he also noted that the key to long-term success is serving both.
“Appealing to both sets of customers, new and repeat, is vital to our overall growth.”
