Good day, ladies and gentlemen, and thank you for standing by. Welcome to Havertys' Third Quarter 2013 Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 31, 2013. And I would now like to turn the conference over to Mr. Dennis Fink, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Katya. Good morning, everybody. During this conference, we'll make forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which we speak of 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. Our President, CEO and Chairman, Clarence Smith, will now give you an update. Clarence?

Good morning. Thank you for joining our third quarter conference call. We're pleased to report strong Q3 earnings of $0.42 compared to $0.15 for the same period last year. Year-to-date earnings for the 9 months were $0.99 compared to $0.36 last year. We had excellent sales and operational performances, with 11% plus increases in net sales and comparative store sales. This was our eighth consecutive quarter of same-store sales increases. That performance combined with gross profit margin increases and a decrease in SG&A percentages produced Q3 pretax earnings of 8% of sales and 6.7% of sales for the 9 months. We're encouraged about the positive customer response to our upgraded product mix and enhanced store displays. Our target customer clearly appreciates the value, service and presentation that she experiences when shopping at Havertys. We've invested heavily in improving our stores and in our systems to better serve our customer. Recent independent research validates the high-quality service levels that our stores and our fully integrated distribution and service teams provide. Written business for October is up 5.6% over the midteen percent increase last year. The recent economic figures highlighting the leveling off of the frothy housing markets and negatives from government shutdown and overall budget tensions have had some impact on fourth quarter sales thus far. The increase in our gross margins has had a significant impact on profitability. We believe that our upgraded product and the incremental price points, the favorable trend in inbound ocean freight cost and the company-wide focus on pricing discipline are the major factors in the gross margin increase. Our year-to-date margins last year were impacted somewhat by an abnormally high level of accessory markdowns as we reworked our full accessory program. We're now maintaining regular margins in the accessory categories. During the third quarter, we…

Thank you. The financial highlights were covered in our earnings press release that we sent out last night. I'll just ask you to take note of the expectations section of the press release. In there, we mention fixed and discretionary-type expenses within SG&A usually grow between 3% to 5% per year. We're not yet giving guidance on our specific 2014 expenses in that category -- of those categories. We'll do so in conjunction with our fourth quarter press release. I also want to point out the Q4 selling square footage is going to be about 2% less than it was a year ago. And also that the 3% increase in selling square footage Clarence mentioned for next year, most of that will take place in the fourth quarter. Operator, at this time, we'll take questions from the audience.

[Operator Instructions] And our first question comes from the line of Budd Bugatch with Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: I guess, and the greatest margin is notable, and I'm glad you called it out, Clarence, and talked about the persistence at, I think you said, 53.6%. Can you maybe help us understand the rank order of gross margin by category, maybe upholstery versus case goods, bedding and accessories, which has the highest gross margin?

Budd, it's pretty equal. We don't really -- we haven't broken that out in the past, but there really isn't much difference. The accessory category, I mentioned, was very low last year, which was a drag. This year, it's back up, but most of that was because we're closing out. It is probably a trend that the bedding is a little lower because it's very, very competitive. But the other categories are all pretty balanced. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Clarence, accessories doesn't have the highest margin? I thought that usually did.

No, because -- well, it should, but we've completely worked our program. So we were in a -- closing everything out. We completely eliminated most of our -- almost everything that we had and put in a new program. So yes, it should have as high a margin as anything, but a little better. But it hasn't historically in our stores because we haven't been really a player in that category. And now, we're getting to be that. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And now with the business really showing such a positive way, you've got, I think, 3 stores planned for 2014. How should we think about the store growth in '15 and beyond?

Well I think a net of 3 to possibly more stores a year is what we're going to be doing because we're continually relocating stores and moving stores. It's tough to find really good opportunities for us. I think 3 to a maximum 5 is probably what we would plan. And we may acquire some -- a small chain of 5 stores or something like we did in 2000, when we took on the HomeLife stores. But that's really not what we see in our plan going forward. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And I'm noticing, obviously, the written business coming down and in terms of its year-over-year increase to what I think is a more sustainable level and maybe you'll tell me if you disagree with that.

No, I agree with that statement. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. So that's the kind of the level that is a level -- a good planning level for us to plan for going forward?

I'll let Dennis answer that.

I'll be the one to say that we're really not going to give guidance on top line, Budd, but we understand where you're coming from, and we have had some strong years. Or a couple of years of strong comps, then I think we'll try to get every dollar we can, but some of it depends on the tailwind. And I'll stop there. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And lastly, Dennis, while you're talking about particular parts of the income statement, you've talked about fixed expense kind of rising. Would you kind of help us where -- how we should think about fixed expenses going forward and what the drivers might be and where we might see those expense differentials?

I'll give you some color on that. We're actually trying to finish our plans fully for 2014, and we'll give you some better guidance on that in our next conference call or our next press release even. But the one area that is discretionary that we call within that nonvariable SG&A category is advertising. And we're likely to increase our advertising. The other thing that's -- it's really inflation in wages, so it's increases that, on average, the employees get that is a big part of that. The insurance programs with this year and the Affordable Care Act coming up will cost us more money. It may cost us something like 20% more than it did before, maybe a couple million dollars. Budd Bugatch - Raymond James & Associates, Inc., Research Division: $2 million, is that the number?

Yes, maybe something like that. We're -- as I said, we'll focus in on that a little better, but it's somewhere in that magnitude. And then other things are just related to our -- those are kind of the automatic ones, the bigger ones. The other thing is the store expansion itself or any new initiatives we have, like, we are hiring more in-store designers that will hopefully drive sales and average ticket and the closing rate, but those are more of a fixed-type expense. There is some variability there, but they're another person who's mostly on salary that's added to some of the stores. We've already got a little bit of that in the third quarter and we'll have more in the fourth quarter. And then the other thing is the store expansion, how many new stores will we open. And those are heavily weighted probably to the fourth quarter. So that it's the rents and the occupancy costs entirely and including utilities and the other -- kind of the staff, the branch manager of the store we opened, some of the administrative staff, all of those are part of a kind of a -- it starts up in the month you open, a little bit of start-up expenses ahead of it,. And it really depends on when those get open that we would incur those expenses. So as I said, we'll try to give you a little more guidance, but net-net, most of the increase is going to be fairly level throughout the year, with the store opening increases being third and mostly fourth quarter. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Of next year, of 2014?

Correct. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And lastly on the advertising, I recognize that it can fit in that nonvariable side. The advertising the sales ratio for the third quarter and year-to-date is where? Where was it? What percentage of sales was advertising?

We're under the 7% level. Let me just look at that a second and come back to you. Budd, in fact, I may need to pull that out. Let me try to work that answer into...

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

So just to follow up on Budd's question about the recent trends, October, up 5.6%. I think, Dennis, you said you were up against midteens for that month. How do the comparisons play out as you look forward to November, December?

The comparisons for those first 2 months together, so in other words, saying what the increase was for those 2 months together last year, they were approximately -- let me say it this way, the fourth quarter in total last year was up 12.7%, and it was 16.7% for the first 30 days. So you're looking at about probably a 12% or -- excuse me, about 11%, 10% or 11% increase in 2 months. That'd be the right way to look at it. So comparisons aren't as tough in November and December from a percentage standpoint, but those are the 2 bigger months of written business, our November, December. We have a little calendar difference with the Thanksgiving a week later, and we have -- usually, we have promotion after Thanksgiving a week or so, and that's later this year too. So it's hard to tell exactly how that plays out. And it's not as favorable as an earlier Thanksgiving, most retailers would say. So the comparisons are percentage-wise a little easier, but on an absolute basis, a lot of business is expected in that time period.

Got you. But so as we think of the quarter, though, as a whole, you do have easier comparisons in what are the 2 bigger months of the quarter?

That is correct.

Okay. And then I don't mean to split hairs here too much, but since some of the government issues have been at least temporarily resolved, have you seen any pickup in business in the back part of October?

It stayed pretty consistent the last couple of weeks. We don't promote very heavily in the back half of October. We start now, and we'll be advertising pretty heavily with our television and our other promotions through the remainder of the year. So, as Dennis pointed out, I mean, we're counting very heavily on November and early December.

Got you. And then just one last one on competition. Obviously, there's been a big bankruptcy of Furniture Brands. It seems like the most likely scenario is that business gets kind of rebooted with a financial sponsor, but is there anything that you've noticed differently from a competition standpoint in the wake of that bankruptcy?

No, the people who rely on the Furniture Brands product, the Thomasville, Broyhill -- I mean, their closing Thomasville stores in our markets. If you have Broyhill and Lane, it was probably tougher to get the product. So that might have helped us with the independents, and I think the independents are going to continue to get weaker. But the major players are strong. And you know who we compete with in those -- in that realm. So those guys are promoting heavily and are strong, and we might have gained in the, I'd say, maybe in the more designer and decorator, as well as the independent players, but as far as the overall market, I don't think that by the time Furniture Brands declared bankruptcy, they were pretty weak anyway, and their lines have gotten pretty cold.

Operator, I'd like to follow up on an earlier question about advertising. And for the year-to-date period this year, we're slightly under 6% for advertising and marketing together. We always report together. And last year, that was just under 6.5%. So we have leveraged our advertising, although we spent more. We have a leverage, as the sales increase has been greater. So we'll take the next question.

Our next question comes from the line of Todd Schwartzman with Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: Just to follow up on the competitive front question, just in general, not looking at Furniture Brands per se, by just focusing on your core markets of Florida, Texas, Atlanta, for example. If you think you are gaining share, at whose expense would it be and is it largely related to your change in price points?

Well, I do think that we're getting the attention of a customer in the past who might not have looked at us because we are offering more decorator services, really not design, but more decorator services. We have now in our stores 50 salaried decorators, and we're expanding that program. That's helped us get into the homes of our customers and helped us in putting those homes together and larger tickets. So I think that we are probably gaining some share of the former decorator market, which was dominated by the independents and the design houses. And people see us as a good alternative. We can service it and get the product better, and we have the decorators working for us. So I think that we probably gained share there. As far as the core furniture market, I'd say that we've gained a little bit, probably not as much as we have on the independents and the decorator group. Todd A. Schwartzman - Sidoti & Company, LLC: Got it. And for the third quarter, what was the effect of -- maybe you quantified it already, but if you didn't, what was the effect of pricing and what would -- what was the delta in terms of unit sales?

We didn't quantify it other than ticket size, Todd. And there was some slight increase in the average unit price, but it was mostly ticket, not unit [ph]. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. I just wanted to reconcile something, and just looking at your implied fourth quarter guidance with respect to SG&A as a percentage of sales, just looking back over the years, there seems to be a pretty discernible and consistent pattern, whereby sequentially from Q3 to Q4, you have oftentimes a pretty sizable drop in SG&A to sales, perhaps 100, 150 basis points or more. By my math, that looks like that does not recur this year. I'm just wondering, a, am I correct, and what might those factors be?

I think you are correct. The advertising spend in the fourth quarter will be higher than in the prior quarters, and that would be the main thing. Just from a seasonal standpoint, utilities are lowest in the second and fourth quarters. The third quarter is the highest because of the hot months of the summer. So we usually have a savings in the fourth quarter there, but we are dialing up the advertising somewhat as -- it's usually the -- it's the quarter with the most and strongest holidays followed by the third quarter, with some good holidays there too. But you are correct, the fixed spending will be similar, probably third to fourth quarter, what we call fixed and discretionary. And their variable is under 17%, and that's probably about what it's been year-to-date, and the fourth quarter will likely be something close to that. It's under 17%, maybe 16.75% [ph], something like that. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. Okay, that helps. I'd like to take more than a 1-quarter view of things, of course. So as far as the late year, Q4 ad spend, Dennis, is that something that happens next year as well or is it too early to really talk about that?

I think it's typical that it happens that way, but we haven't finished our plan. It's close to being finished, but it isn't finished yet. But, yes, the second quarter is usually the lowest spend on advertising and the fourth is usually the highest, and the third is usually right behind that. Todd A. Schwartzman - Sidoti & Company, LLC: Got you. Want to just talk about accessories for a moment. In the third quarter, was there any meaningful or notable difference in the mix of accessory sales between the delivered business and written?

As a percent? We're right about 3% of sales.

Yes, and I'll tell you this, the accessories are mostly take-with, and there are exceptions. But a lot of them are take-with. So there's not as much lead time between the written business and the delivered business. We do also certainly deliver and have that choice people can make. Todd A. Schwartzman - Sidoti & Company, LLC: Right. And the comparison I was trying to make was between written and delivered within Q3. So that here, I just wanted to see if there's any shift under way in terms of an increased mix of accessories.

Well, still the accessory mix is a fairly low number. And I can't answer your question exactly about -- just off the top of my head a written versus delivered. So we're -- it's trending up, I will say that much.

I gave a number in my comments that accessories were up 28% for the third quarter, and that's versus 18% for the year. So it's accelerating. Todd A. Schwartzman - Sidoti & Company, LLC: And do you guys...

And I would say the rug category is probably the biggest drop for that. Todd A. Schwartzman - Sidoti & Company, LLC: Clarence, do you have a stated goal in terms of what you want -- where you want the accessories to get to?

We've talked internally of getting it to 5%, and at one time, it was down to 2.5% or so. So that's -- as far as the category itself, it's significant, but as far as our overall sales, it's not a big number. Todd A. Schwartzman - Sidoti & Company, LLC: And if you hit that goal, how responsible will the designers be for achieving that versus other factors?

I think there'll be very -- a huge factor in that. Getting in the customer's home and completing the sale with accessories, rugs, lamps and top-of-bed is a big part of what the decorators will have helped us do, completing the whole picture for the customer. Todd A. Schwartzman - Sidoti & Company, LLC: Are there any other specific items or categories of accessories that you would call out as selling particularly well right now?

Well, no. I think all of those categories are up, which they are. And the largest of that would be top-of-bed, but that's probably the one that was down the lowest. So they're all up in the -- over 25%. So again, Todd, it's not a huge factor yet, and if we double where we were, that's a pretty good direction, and then we'll take it from there to see how far we go up.

[Operator Instructions] The next question comes from the length of Kristine Koerber with DISCERN Securities.

A couple of questions. First, you mentioned you have 15 interior decorators. Can you just give us some color on how many more decorators you plan to add? I mean, will all the stores have interior design people on staff?

We have 50 now. That's spread out across our company, but it is focused in key areas, where we started it, like, for instance, Atlanta. We have more than 1 in every store. So I don't think it applies to every store of 1:1 for every store. In our smaller markets, we might not have them. But we may have more than 2 in our larger stores and we will. So we have 119 stores, so I could see us in several years get to 100. But that's -- we're at 50 now. We feel good about the program, but it's new. And we're getting our whole team used to it and getting better at supporting that group. So it is a direction to help us reach the customer and, frankly, help us serve the customer that we probably were under-serving in the past.

Okay, that's helpful. And then can you give us some color on the traffic trends throughout third quarter? Did you -- how was the month of September? Did you see a slowdown before the government shutdown? And just any color you could provide, that would be great.

Well, the traffic went in step with our business, and we had better results in July than we did in August and September, and we did have a better closing rate, though. And I'm not sure how that actually broke out by quarter -- or, excuse me, by month. But for the quarter, it was up slightly and traffic was down slightly, with the closing rate being stronger, more than offsetting for the small decline in traffic.

Okay. And then lastly, the sales per square foot, so 9 months, say, you're doing about 174, and you -- said some -- mentioned some stores doing over 300. Can you just maybe talk about the difference? I mean, those stores that are doing 300 versus the average or less than -- below the average? I mean, what's different, the market, store size?

The ones that are doing 300 in our larger markets, and also markets that we're doing a better job with the decorator team. With our stepping up of our product quality and more design look, we're really appealing more to the larger markets than we did in the smaller markets in the past. And that's, frankly, where we put most of our efforts. So in the Dallas, Atlanta, D.C., South Florida markets, we will continue to push our presentation there, and I think we'll get the most sales per square foot in those markets because of the density and the opportunities. The smaller stores, let's just say, Anniston, Alabama will be very profitable at $150 a foot. The larger markets, certainly, we need to justify higher sales per square foot for the rents and for the overhead. And we're getting to -- we're gaining some traction back to that, and it hopefully, will continue to accelerate.

And I'm showing no further questions in the queue at this time. I'd like to turn the conference back over to management for closing remarks.

We'd like to thank you all for joining our call and for your interest in Havertys.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.