Good day, and welcome to the HVT Third Quarter 2021 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the presentation over to Mr. Richard Hare, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. During this conference call, 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 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 Securities and Exchange Commission. Our Chairman and CEO, Clarence Smith, will now give you an update on our results. And then, our President, Steven Burdette will provide additional commentary about our business.

Good morning. Thank you for joining our 2021 third quarter conference call. We're very pleased with another record quarter with sales of $260.4 million and net income of $24.2 million. Our team has done an outstanding job in producing this performance during the ongoing COVID concerns, significant product pricing increases, major hiring challenges, especially in warehouse and distribution, rising operating costs and unprecedented supply chain disruptions. I believe that we've outperformed the competition in being able to deliver to our customers. We're very pleased with the efforts of our merchandising team and the pricing discipline at the store level. Even with the unusual and significant demurrage and LIFO charges, we increased our gross margins and reached record operating profits. Our available inventory is in the best shape we've had in over a year. We're restarting new product development that was on hold due to COVID and the massive backlog of sold orders. Clearly, our priority focus is bringing in sole merchandise to bring down our backlogs and to better serve our customers. However, we are a home furnishings retailer and fashion and style are important drivers of sales. We're always excited to see the latest design and styles hit our floors, which is an important differentiator for Havertys. In the past several months, we've added over 500 online exclusive products, including outdoor products and specialty occasional items, which have had good response. We greatly appreciate our manufacturing partners in China and Vietnam who struggled with the COVID shutdowns in the past several months, but are opening back up and increasing their production levels. Because of the COVID-related shutdowns, we will have gaps in imported products, creating some out of stocks, especially in case goods. Our merchandise and supply teams have a strategy to soften this gap related to the Vietnam…

Thank you, Clarence. I am thrilled with our results for the third quarter. Our performance could not have happened without the dedication of our entire team in the stores, distribution centers, home delivery, service and home office, whom I want to congratulate personally for their efforts. Our supply chain network has been able to increase the flow of products into our warehouses over the third quarter. Our warehouse inventory levels rose over 8% for the third quarter, and we are seeing our inventories continue to rise so far in October. We will expect to see a slowdown in imports arriving in the November, December time frame. The headwinds during the quarter continued with the Vietnam shut down beginning in late July, rising container rates, container congestion at the ports along with container capacity, staffing issues with the continued spread of the Delta variant and trucking pressures moving products within our network. There was a bright spot during the quarter with the foam supply as our vendors do not see this as an issue moving into the fourth quarter. Vietnam began a shutdown in late July and things accelerated in August, where a majority of our factories were closed for the months of August and September. We are getting positive news from our vendors as they began opening at the beginning of October. However, it will be a slow process to get back to 100% production. Majority of the vendors feel like they will be able to get back to 50% to 75% of production by Chinese New Year with a return to 100% not happening until late first quarter next year. A few vendors did give a more upbeat outlook that they will be back to 100% production by the end of November because of the safety and medical protocols…

Thank you, Steve, and good morning. In the third quarter of 2021, delivered sales were $260.4 million, a 19.7% increase over the prior year quarter. Total written sales for the third quarter of 2021 were up 2% over the prior year period. Comparable store sales were up 17.7% over the prior year period. Our gross profit margin increased 60 basis points from 56.2% to 56.8% due to better merchandise pricing and mix and less promotional activity during the quarter. These improvements were partially offset by an increase in our LIFO reserve as we continue to see increased freight and product costs. Selling, general and administrative expenses increased $16.1 million or 16% to $116.2 million, primarily due to increased sales activity. However, as a percentage of sales, these costs declined 1,400 basis points to 44.6% from 46%. As Steve mentioned earlier, during the third quarter of 2021, we did experience increased port congestion, and we incurred significant demurrage costs of approximately $2.3 million, which negatively impacted our selling, general and administrative costs. However, as demonstrated in the past 4 quarters, our financial model has substantial operating leverage at these sales levels. Other income in the third quarter of 2020 was $2.4 million, which included the gain on surplus property that was adjacent to our distribution center in Dallas, Texas. Income before income taxes increased $7.4 million to $31.9 million. Our tax expense was $7.7 million during the third quarter of 2021, which resulted in an effective tax rate of 24%. The primary difference in the effective rate and statutory rate is due to state income taxes and the tax benefit from vested stock awards. Net income for the third quarter of 2021 was $24.2 million or $1.31 per diluted share on our common stock compared to net income of $18.3 million…

We are very pleased with the record performance year underway. We're comparing well with the second half records of 2020 and against 2019. We believe that the dramatic return to home that COVID precipitated has changed the importance of home for years to come. We agree with the recent editorial from Jerry Epperson, an industry veteran and analyst in Furniture Today this week. Following the boomers, the millennials and Gen Xers have moved to desiring homes because of life changes related to having children. We're having another housing boom where people want to move to the suburbs. We're getting back to the 67% of our households being homeowners. The home will continue to grow an importance. You can now shop, bank, see the doctor and go to church from home. This is going to transform our nation in terms of level of productivity, innovation and new ideas. Havertys' 136-year history and strength is in serving the home furnishing needs in the 16 Southern, Atlantic and Central states. These areas are gaining the most transplants from the rest of the country. We think that our locations, premium product merchandising, H Design services and dedicated distribution positions us to continue to grow from the all-time record set in the past years. We believe we have the experience, the deep resources and strong commitment to growing our sales and maintain strong double-digit operating profits in the years ahead. Operator, we'd like to now open the call up for questions.

. And we'll now take a question from Brad Thomas with KeyBanc Capital Markets.

Clarence, Steve and Richard, I hope you're doing well. And congrats on all the strong momentum here year-to-date, really on track for quite a year in a difficult operating environment. A couple of questions, if I could. The first is just how to think about the size of the backlog that you all are working with right now and how big that order book is and what kind of benefit dollars that could potentially be to sales as that starts to normalize for you? How should we think about quantifying that to the extent you want to share anything with us?

Brad, this is Richard. I would say we still have a very healthy backlog. Last year's backlog in the third quarter was exceptional. This year's backlog is up over 40% from last year. So we do have, indeed, a very healthy backlog going into the fourth quarter.

But it's come down in the quarter. It is healthy. We feel like it's something we're now managing. So it's significant. We feel good about what's going to happen this quarter because a lot of it will be delivered this quarter.

Got you. Really helpful. And moving on to the written side of the business. You noted that quarter-to-date, the written sales are down a little bit here. Can you talk about maybe what may be affecting that? Have there been any changes in how you're promoting? Any changes in perhaps what you're seeing out of customer behavior. How do you feel about the cadence of the written orders as we think about kind of modeling the year-over-year growth? Obviously, from an absolute value, you're running at tremendous levels versus pre-pandemic. Just trying to think about what that growth rate may look like going forward.

Well, out of stocks certainly affected and some of our best sellers were flowing in. A lot of the product coming in is already sold going out. So if you're coming in today on some of our best-selling let's just say, case goods, the delivery is going to be out. It could be months, could be in the next year. So people will delay if they can't get the product. What we do find is any product that we get back in stock, immediately become our best sellers. So the backlog that affects our best sellers definitely affects what people feel about buying product now. They want to know that they can get it. And I think one of the things that they're recognizing if they are planning on this is that they need to place the order to be able to get in line to get it. So the out-of-stocks, even though it's better than last year overall, does affect it also -- and Steve referred to this, it particularly affects our special orders. And we've been pushing when it first started, that we'd be out about a month on a special order upholstery and get it in about a month. We're pleased with the domestic producers now increasing their product and being able to get it to us quicker, but it's still something pushed out there from what has been driving our business. In other words, special orders, as you remember, was about 20% of our upholstery business. We've had to back off of some of that and it reacts -- and customers react to it because they can't get it, and they don't know when they're going to get it. So having the product affects incoming orders. It's still a very strong level, but it does affect what people feel about making a purchase.

. And It appears there are no further telephone questions. I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Well, 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.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.