Good day and welcome to the Haverty’s Fourth Quarter and Fiscal 2014 Fiscal Results Conference Call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Mr. Dennis Fink, Chairman, Vice President and Chief Financial Officer. Please go ahead sir.

Thank you, operator. There was one small detail there, Mr. Smith is still our Chairman, he’s sitting here glaring at me at the moment. So I am EVP and CFO. During this conference we’ll make forward-looking statements, which are subject to risk 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. Our President, CEO and Chairman, Clarence Smith will now give you an update.

Thank you, Dennis. Good morning. Thank you for joining our 20014 fourth quarter and full year conference call. We are pleased to report strong earnings for the fourth quarter, of $0.46 before non-cash pensions’ settlement adjustment, compared to $0.42 for the same period last year. For the full year 2014, we had adjusted earnings of $1.28 versus $1.39 in 2013. Without the pension charge, this was our second best profit year behind our record 2013. As previously reported, net sales delivered for the fourth quarter 2014 were $213 million, up 8.6% comparative store sales were up 8.3% on top of a strong 9.5% recorded in Q4 of 2013. Written business was up 6.7% in total and increased 5.9% for comparative stores. We delivered especially strong in December, which helped reduce the backlog due to supplier and shipment problems encountered earlier in the year. And for the year, our average sales per square foot moved up to $183 from - and for the seasonally strongest fourth quarter, we hit $200 per square foot, versus $185 in the prior year’s Q4. Our Q4 gross margins were 53.6% consistent with our earlier guidance in the third quarter release. We continued our trend of a higher percentage in custom order merchandise, upgraded product mix and an increased average ticket. We are very pleased to complete the major objective of fully settling the obligations related to our pension plans. After the plan was frozen in 2006 we moved to a strong emphasis on the employee 401-K plan. We reached an over funded status on the pension on 2013 and proceeded on an intensive program to terminate the plan and to settle all obligations for the plans participants. One of the top rated insurance companies Massachusetts Mutual assumed all of the annuity payments for the current…

Thank you, Clarence. Last night’s earnings press covered the financial highlights and we’ll only touch on a few of those points now before we open the call up for your questions. We customarily give guidance for expected gross margins and SG&A expenses for the current year within our earnings releases, we don’t publicize any sales forecast but do announce our actual sales within a few days after each quarter and disclose how sales for the new quarter to date are trending when we announced the quarterly earnings. The fourth quarter of 2014 fixed and discretionary type expenses within our SG&A came in lower than we had previously guided. Our advertising and marketing spend was only slightly higher than last year rather than the $1 million increase we had projected. Also one large new store we planned to open in late November actually opened in mid-January, so the related pre-opening expenses are following into the first quarter and the additional ongoing occupancy admin costs start this quarter as well. All of our stores and openings in 2014 were in the second half of the year, plans for 2015 are for four of the five new stores to open by July. The 2015 weighted average retail square footage is expected to increase by about 3.4% based on our current plans that will be on a weighted average square footage basis the first half will be up about 2.5% and the second half of the year will be up about 4.2 % so that gives the total for the year again of 3.4%. The lease obligations for almost all of our new stores in 2014 and 2015 fit the criteria to be recorded on the balance sheet and there is imputed interest expense for these locations that gets recorded on the P&L. Interest costs for 2015 including these leases should be about $2.7 million versus the $1.1 million interest expense recorded for the year 2014. We mentioned $2.7 million other non SG&A cost for 2015 in our expectation points in press release, that is essentially the same as the interest expense since the other few items in that category net to zero. Our inventory increased during Q4 and we want to have faster delivery fulfillment to customers going forward and be a little less susceptible to lead time fluctuations caused by the availability of slots and containerships, labor issues and points and other imports and other events that are out of our control. Operator at this time we’ll take questions from the audience.

Thank you. [Operator Instructions] And we’ll take our first question from Brad Thomas.

Hey guys this is actually Jason standing in for Brad. Congratulations on a great quarter. Just want to start with a quick one, with the change in the retirement benefits, since this has been frozen since 2006. Is there any P&L impact going forward? Is this like a cost savings, or are you just kind of, more of an administrative task that you’ve just skidded all off your books?

Yeah, there is periodically a cost, and sometimes it’s actually a benefit depending on the funding status at each year end. And the volatility and the funded status and the - it therefore, then the volatility and expense are two big reasons to try to liquidate and settle out the obligation. Administrative expenses do run $300,000 to $400,000 a year, that the company has had behalf of the plan. And a lot of time - and effort from the management team here. So it is, it’s largely administrative, it is avoidance of the fluctuation of cost, and the idea of how much funding will be required. And then you’ve got the things that other people quote as they go through the same activity. It’s just the mortality, uncertainty, longevity, and other demographic statistics that you have to assume about your plan, to just not really know where you stand expense wise at any point in time. So for 2015, there won’t be a savings, but on the years after that we’ll avoid cost and have less administrative expenses.

Okay. And then on to the ports, you had mentioned that you had a higher SG&A because of supply chains, presumably a lot of that was moving things in earlier with the port situation. How much of a drag was that, what was the incremental cost that you guys think you incurred from that?

Well some of that cost we're talking about is actually in the cost of goods sold. And it is just paying more for containers and to get on the ships, because the ships aren’t couriering as fast, because there are so many of them stuck outside of ports. So they can’t get back to Asia for their next, their next voyage. So it’s hard to give an exact number, I think this quarter we’d be glad to disclose that to you after it’s over. And the other part about the SG&A increases, it’s just really related to rescheduling deliveries, not being - I guess as able to predict, and therefore having - that are short because we can’t get the goods in as we expected, but it’s just an efficiency hassle from the SG&A side. And again the cost of goods sold aspect is really the whole inbound cost of freight and clearance.

And did you say how much that was for the fourth quarter? Roughly?

No we haven’t said exactly, there’s probably 10 basis points or so in the SG&A type of cost from the inefficiencies. And yeah, there’ll be something more on the cost of goods sold side in the first quarter because there’s more disruptions in the fourth quarter. And actually the flow from it came in for us, but the first quarter’s actually got some increased spend to third parties.

And I know you guys are trying to introduce some new products, did any of that get disrupted, or is there any that you tried to set last quarter or won’t be able to set whenever you planned, or is that pretty much in the stores as you thought it would be?

Well there’s been, inward delays Jason, getting the product in. And we are in a pretty good inventory situation, because we planned for this but there were certainly delays in getting new product in, and our priority was to get deliveries out, so most of that’s coming now or getting on to the floors now. We were pleased that we were able to get some key shipments out of China before Chinese New Year. So we think we’ll be in good position with new product, and to fulfill sales in the next couple of months.

Okay. And then lastly, you talked about 25 of the H design studios this year? It seems like more than you had anticipated, is there a new kind of long-term target or thinking about that?

These are modifying our existing stores to have design centers in them, they’re very - they’re compact, they’re not big, but they’re stylish, they’re designed to be upfront so people know we're in the design business. It’s about a $25,000 project each, and these are in addition to what we've been doing. So this is not part of the major bright inspirations remodel, which will be almost completely finished this year.

But I think in the past you said you expect to have designers in like a 105 stores, is that still good, or you kind of raising that up a little bit?

That’s probably about right. That’s about the right number.

And we’ll take our next question from Todd Schwartzman.

I wanted to ask about the expansion of the two DC's that you referenced at the top of the call, whether this is baked into the 2015 guidance?

Well we will start on the projects, I don’t know, they won’t finish this year. We will start and move it out till '16 and maybe out further. These are adjacent pieces of property to our current facilities, and we will need to expand in the next couple of years. So that’s really the message. Particularly those two, we're going in Florida, we're adding a lot of goods to that mix down there that’s specific to Florida, and we want to flow containers directly to that facility. We did expand capacity, storage capacity there, but as we're adding categories such as outdoor furniture and as we're continuing to grow, we will need more capacity there. And the same thing applies to our Western DC in Dallas, as we will add three stores that they serve this year and have plans to do a couple of more, or several more in the year afterward, so it’s just going to be necessary to do that.

Will you start working on both projects, more or less simultaneously?

No, we will break ground probably on the Florida facility first, and then Dallas, Texas will be behind that, I don’t see both of them coming out at the same time, but we will have planning going on with both of them.

And in terms of the actual work, which quarter do you start to see the full impact of both?

Yeah Todd, we’ve really got very little in our CapEx budget this year for DC distribution center expansions. And so there will be nothing operational this year, the main spending would be next year. And as Clarence said, we're just trying to get the planning out of the way so that when we feel the need, we can pull the trigger and be within eight months or nine months of getting things completed.

We do a number of structural issues, particularly, to preparing the soil for Florida over the last - well that was actually in 2013. So we were prepared, we’ve been preparing for this and now we've engaged architects to start the process further.

How should we think about free cash flow for this year?

Well start with your earnings estimate. And depreciation expense is probably going to be a little over $24 million, let me just check something here a little quick. Yeah, it’s probably actually more like $25 million depreciation, so there’s an increase there. And we've grown our inventory, I don’t think it’s going to grow much from here, from year end, fluctuate during the year. And it’ll grow slightly, because we’re opening the new store, so it’s mostly sure an inventory there, that’s going up. Our warehouses are really pretty well-stocked at this moment. So I think that we’ll be paying some dividends and the rest should be usable for other activities.

And CapEx in '16 next year?

No, it’s going to be about 31. Excuse me, yeah that’s right. So it’s about $5 million, $6 million higher than depreciation, probably the best way to look at that.

And out to next year CapEx, I’m guessing doesn’t moderate very much, is that accurate?

So you mean like in the '16 or?

'16 over '15 so from the low 30s, do we see mid-20s or this kind of stay around the same level as this year?

I think it’s likely to stay at a similar level.

Primarily because the distribution –

Yeah the distribution and you’ve probably got a couple of years out. We will be building these additions at some point, it’s really just getting into planning position that we can decide when to trigger it. But right now, that triggering is expected in '16 or '17.

And as far as the competitive landscape we’ve talked in the past about, about Texas, about Dallas, Fort Worth in particular. But what can you tell us about the - at least perspective changes, if any, in the competitive landscape outside of DFW?

I think we’re very well-positioned Todd. I’ve mentioned that, and that’s one of the reasons I talked about our awareness. We feel like we’re very well-positioned in our marketplaces, I mean as we move into a couple more, let’s say south-east Florida’s very competitive. We’re moving in aggressively down there. And yes, Dallas is going to be competitive, we think we’re very well-positioned there. But I would say, and all of our markets, I think we’re very well-positioned when our stores like we want them to look. So I feel pretty good about it.

Are you expecting any new seasoned players to enter any of your markets?

Other than?

Other than Texas, other than Nebraska Furniture?

Not that I know of. I mean I’m sure there will be, but none that I think would have any significant impact on us.

Okay. Thanks gentlemen, I appreciate it.

And we’ll take our next question from Kristine Koerber.

I have couple of questions. First I just want to follow-up on the last caller’s question on the competitive market. Because you’ve mention in your press release that you expect to see some impact in gross margin, as a result of the increased competition in some of your markets? Are you planning on being more promotional as a result?

No, I wouldn’t say we’re going to be more promotional, but we’ll be competitive Kristine. I mean if there’s any liked product, we will be competitive, and there’ll be some liked product. I’m glad that we have developed over the last 15 or so years, our own brand, and we think that’s very strong. But there is product that we sell that’s similar, and certainly in a land like bedding we sell basically the same thing others do. So there will be some competitive pressures. I think that what we've put out there is a good guideline for that.

Okay, that’s helpful. And then as far as the west coast port issue, can you just tell us what portion of your goods are going through the west coast port? I know you indicated most of the goods had gone through east coast, but I’m just trying to get some idea?

Kristine, it’s about 20% to 35% of the imports come through the west.

Okay. And then advertising spend for 2015 is - how should we think about that? Is that going to be up over '14?

Yes, it’ll be up $2 million.

Okay. And then can you update us on - give us an update on case goods, and I’m assuming that your sourcing issues are now behind you. And can you maybe give us color on some of the other merchandise categories, how they’re doing? Thank you.

Well we brought in a good quantity of case goods, bedroom and dining room in the fourth quarter last year, after some real issues all year long. So our inventories are high and very good situation for our bedroom and dining room, and our sales are reflecting some of that now. We’ve got a number of other collections coming in now, and we’re relying on getting out in the next four to six weeks from the ports. It is going to be a growth area for us, certainly compared to last year. Case goods was a weak performer for us in 2014, due to the fact that we had to move the goods, we were out of some of our bestsellers, and we had to replace them. But the new collections are selling very well, and we’re enthusiastic about that.

And then color on - how’s the upholstery? How did the upholstery category do?

Upholstery is still a strength for us and custom, the special order is continuing to grow. It is, the whole category is growing faster, I would say that now some of those growth gains will be moving over to case goods is we're better in position with those categories. So upholstery is still a very strong strength of ours, particularly as we get into the home, and this H design, and more custom. That’s a category that people want to go to first and, I think, will continue to grow with us.

I’ll mention Kristine, and the custom order upholstery was up 19% year-over-year in the fourth quarter.

Okay, great. And just one last question, how does the Style Studio concept doing, and how do you see that as far as longer term growth opportunities, with the new store design?

It’s a one-off store in the middle of Buckhead, which is one of the hottest areas anywhere round here. And I think it does attract a different customer, we’re doing more special order, more in on design there than our other stores. We’re always tweaking it, and I was there this weekend. We’re changing some of the merchandise to fit what that customer is asking for, it is more contemporary. And we’ve got a lot of that product coming in, so I think it’s done well for us. I think it’s also an important branding message for Haverty’s in Atlanta and the Atlanta market is doing really well, so we’re pleased with it. We’re always going to try to figure out how to maximize it. We have the possibility for a couple more, but our main emphasis is growing our core Haverty’s store. This is more focus for the in town Metro contemporary customer and there’s some opportunities and we’re looking at those. So that could happen, I don’t see a large number of these rolling out, because this kind of positioned, or this kind of market doesn’t exist in a lot of our other stores or other market areas.

And we’ll take our next question from Budd Bugatch.

Good morning Clarence, good morning Dennis, congratulations on a good year and a good quarter, and so far this year. I got on a little bit late, and I was listening to Todd’s question on CapEx, and I got a little confused. And if you’ve given a - maybe you can just repeat it for me, for what you expect for CapEx this year and maybe for next year. And how you expect the use for provisions of working capital on cash flow statement?

Yeah Budd, we got it to $31 million for CapEx for 2015. And we don’t have an official budget or approval for '16, but the likelihood is, it’s in the same range, $30 million or plus, somewhere near. And on the working capital, we just said that the inventories grew quite a bit in the fourth quarter, which we wanted that to happen, and we don’t expect much further growth, except for the new stores that are going to be opened for the year. For net new stores, its $2 million of inventory probably, little more than that but maybe $2.5 million of inventory in the showrooms. And the warehouse inventory, we’re in close to capacity there, so until we did expand our distribution down the road. We probably have got a level inventory that won’t grow that much. And then really - we said depreciation was going to be higher $25 million, which is CapEx or $6 million higher than I’d expected. And there really weren’t a lot of other changes projected for working capital accounts.

So I’ve got working capital next year, up about, in net of about $4.5 million between payables and receivables and inventories, is that a reasonable kind of growth you think or how would you characterize that?

It’s not unreasonable, its - I’d say that’s in safe with what our expectations are in general, modest growth in working capital.

And quarter-by-quarter, how are the stores going to open Dennis, you may have already gone over that if its ground or –

Sure that’s okay, we've got a total of five store openings and one closing. So net of four stores and the - we've got one store opening, already open this year, two opening in the second quarter, one in the third. And then one expected to be in the fourth quarter, you can never tell if that makes it or not, but they’re - so they’re little more front-end loaded this year, last year’s backend loaded.

By the way, Clarence I think that Buckhead store is terrific and hope it is doing well, because even I went through that and it was a beautiful store.

[Operator Instructions] And we have no further questions.

I would like to thank everyone for joining us on the earnings call. And for your ongoing interest in Haverty’s. Thank you.

This concludes today’s conference. Thank you for your participation.