Greetings, and welcome to Haverty’s Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Hare, Chief Financial Officer. Please go ahead.

Thank you, operator. During this 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 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 Chairman and CEO, Clarence Smith, will now give you an update on our results and our President, Steve Burdette will provide additional commentary about our business.

Good morning. Thank you for joining our second quarter conference call. Consolidated sales decreased 18.5% to $206.3 million, reflecting the consumers' pullback in home-related spending and the impact of higher interest rates on home sales. Incoming orders or written sales were down 14.7% with written comp store sales down 15.2%. Our earnings per share came in at $0.70 versus $1.27 last year. Recognizing the significant shift of consumer spending and inflationary pressures, I believe that we delivered a solid performance. The quarter sales were negatively impacted the most in April and began to improve along with the increased temperature. We saw a very nice increase in our average sales driven by increases in special order and customer -- and custom design-oriented sales. We continue to gain recognition for our quality products, service and free design. While we are investing heavily in our website is the first way customers learn about us and shop, the physical store and the personal relationship that we develop is the primary way we serve our customers, that in-person relationship has increased in importance since COVID. As our design focus and customization helps drive our average sale over $3,000, the importance of our brick-and-mortar stores where customers can see and touch their selections and gain knowledgeable input from a team member becomes more critical. We're strengthening our store locations in the footprint we are positioned from Maryland to Texas. There are several existing store opportunities that we believe will allow us to build on our base as well as our brand awareness and that can be served by our current distribution. Late this year, we plan to open 3 stores, Concord, North Carolina, our third store in Charlotte, Dayton, Ohio served by our expanded Cincinnati Home Delivery Center and an outlet store south of Richmond, Virginia.…

Thank you, Clarence, and good morning. Q2 proved to be a very difficult quarter for us with weaker-than-expected results. However, the efforts by our team members have become even more important as we have made tremendous strides in making sure that we're getting back to basics and serving our customers' needs to ensure that we are furnishing happiness to each and every customer. Our supply chain network is functioning with no real headwinds. Our inventories were down 14.4% from Q2 last year, and our backlogs remain consistent. Our lead times from our vendors remain in approximately 6 weeks, helping us to continue to drive our special order business. For Q2, our special order business was up over 50% over last year and represents 30% of our upholstered business for the quarter. These increases have continued to be driven by our design business, which grew to over 28% of our business for the quarter with average ticket growing close to 6% over last year. Also, we are encouraged by the increase in the number of customers that have engaged with design and the opportunity to expose our design services to more customers in the future. We are making progress with the website with our new business partner. We are seeing improvements in site performance and now are getting more robust analytics that will help us to continue to improve the user experience as well as drive more AB testing and personalization. We are looking forward to our biggest holiday promotion of the year Labor Day, which occurs in a few weeks. The new products that our merchandising teams brought in earlier this year are starting to gain traction with our sales and design teams. As Clarence mentioned in his remarks, we are excited about the 4 new stores that we will open from the Bed Bath & Beyond bankruptcy. We feel these stores will be an easy fit into our retail and distribution footprint as additional branches in existing markets in 2024. Finally, we continue to focus on our execution, training and retention across the organization. As I mentioned on our last call in May, we were matching the staffing levels in our retail distribution and delivery networks to the current business conditions. The plan was to reduce over 200 positions through normal attrition by the end of Q2, which we have been able to achieve. Now I will turn the call over to Richard.

Thank you, Steve, and good morning. In the second quarter of 2023, net sales were $206.3 million, an 18.5% decrease over the prior year quarter. Comparable store sales were down 19.1% over the prior year period. Our gross profit margins increased 260 basis points to 60.5% from 57.9% due primarily to reductions in freight and a positive LIFO inventory adjustment. Selling, general and administrative expenses decreased $8.1 million or 6.9% to $110 million. As a percentage of sales, these costs approximated 53.3% of sales, up from 46.7% in the prior year quarter. We experienced decreased selling, advertising, distribution and transportation expenses during the quarter. Other income and expense for the second quarter of 2024 was negligible and interest income was approximately $1 million during the second quarter as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $12.8 million to $15.8 million. Our tax expense was $4 million during the second quarter of 2023, which resulted in an effective tax rate of 25.5%. The primary difference in the effective rate and the statutory rate is due to state income taxes. Net income for the second quarter of 2023 was $11.8 million or $0.70 per diluted share on our common stock compared to net income of $21.7 million or $1.27 per share in the comparable quarter last year. Now turning to our balance sheet at the end of the second quarter, our inventories were $114.7 million, which was down $3.6 million from December 31, 2022, and down $19.3 million versus our Q2 2022 balance. At the end of the second quarter, our customer deposits were $45.6 million, which was down $2.4 million from the December 31, 2022 balance and down $45.2 million versus the Q2 2022 balance. We ended the quarter with $109.1…

[Operator Instructions] And our first question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

So I just wanted to follow up about the comments about the recent improvements of incoming orders. Can you shed some more color on what you've seen. Anything you can help us out with, that would be great.

Yes, Anthony, let me kind of go back through our written business trends back to Q1 to now. So in the first quarter, our written trends each month, January, February were in the low teens, down 10.5% in January and down about the same, around 14% and 11% to 12% in February and March. In the second quarter, we saw a pretty big drop in April. We were down 20% in written business, but then we saw some improvement in May. We were down approximately 13% between 12.8% and 13%, and then we're down about 11% in June. So we've certainly seen an improvement from April. I believe Clarence mentioned that in his remarks that April was the most challenging in the quarter, but we've seen kind of more of a leveling back to the low teens in May and June.

Okay. Got it. So less bad, I guess. But -- okay. But I just wanted to get that clarification. And then in terms of the average ticket, obviously, at an all-time high, your freight costs are down, and demand is still -- apparently, it looks like kind of still soft here. So how should we think about the sustainability of the average ticket here going forward?

Anthony, this is Steve. I don't -- we've seen our average ticket grow and it's continued to grow, and that's mainly driven by, obviously, our design business and our continued increase there. As I talked about, we're up to 28%, and we're really focused on exposing that to more customers as they come in the door. So we really think there's an opportunity to continue to grow that. So average ticket has not been an issue for us, and we don't see that being an issue going forward.

Okay. Sounds good. And then as far as your outlook for credit promotions, how should we think about that? It looks like right now, you're offering 0% financing for 36 months. But obviously, as we all know, interest rates have gone up. And who knows where we go from here, but -- so I just wanted to get your take on that as far -- is that the main demand lever you see? Or is there anything else that you plan to do to try to increase the demand?

Anthony, this is Richard. Just from the credit perspective, as we said last quarter, we are being more disciplined on offering extended credit terms to 60 months. We still do that in certain promotions, but we are doing it for a less -- smaller time period again the promotion period. But Steve, do you want to comment on that.

We still are using the 60 months to drive around our major holidays, Anthony, and we'll continue to do that. But the time period as Richard said, we're being more disciplined. We're not running it for the same time periods that we did last year, but we are still actively running in the bigger promotions -- bigger events.

Our next question comes from the line of Michael Legg with The Benchmark Company.

This is Mickey on behalf of Mike. Just a quick 1 here. I'm just curious what you're seeing from a promotional environment in the industry as far as your competitors go. I know you guys don't engage in too much of that besides these credit. So just curious what you're seeing from your competitors.

Mickey, I haven't seen anything really different. I think the industry, you're seeing the sales issues and declines across the board. But I don't see anything radically different with promotions. And there are people who are using credit pretty heavily, but I haven't seen anything significantly different.

Okay. Great. That's like what we like to hear. That's all from us today.

Our next question comes from the line of Cristina Fernández with Telsey Advisory Group. Cristina Fernández: I have a couple of questions. The first one, I wanted to see if we could expand on the demand commentary in response to Anthony's question. I think you mentioned initially that there was some impact from cooler weather in the quarter. Can you give some colors about what categories that affected? And are the trends you're seeing pretty broad-based across categories? Or any areas performing better than others?

Yes. Cristina, this is Steve. I'd say our categories are still performing in the same area. We did getting a lot of new case goods, bedroom and dining room in the first quarter, and we've seen certainly an uptick in that category, but still upholstery is strong for us. So there's no real trend change. We have seen some improvement in bedding, which has been a nice thing to see. And it has been a category that we've been struggling in, but we've seen some improvement in that through the quarter. But all in all, things are pretty steady. Cristina Fernández: Then the second question I have is around the expenses last quarter, you did a headcount reduction to try to align the structure to the sales level. Do you feel like you need to make more reductions in light when you saw this quarter to have better profitability on the back half? Or you're comfortable with where you are?

Right now, Cristina, we're comfortable where we are because we just transitioned through that -- through the quarter, but we will constantly review that and look at that, and we'll continue to make changes if necessary in our distribution and delivery and service side. At the store side, our adjustments there have been more on the number of sales associates that are needed, but we have a X number of member that are needed to run the stores. So I don't see much adjustment on the store side, but any further adjustments that would be needed to be -- because conditions worsen would be in the delivery and distribution side. But we're hopeful that, that's not going to be the case and that we're positioned right to carries forward for the rest of the year. Cristina Fernández: Then the last question I have is on the Bed Bath & Beyond, the acquired leases, congratulations on those. When -- as you see it today, when do you think those stores can open? And what is the type of work required to get those to your standards?

Cristina, this is Richard. We anticipate being done with that in the first half of next year, probably more in the Q2 time period. We've allocated $3 million of capital for this year. Each location is probably between $2.5 million to $3 million of capital required to go in and refurbish it and make it a Havertys location. We did -- we just took the leases over beginning of this month. And so we are going to obviously start paying rent on those now, and we baked that into our expense forecast that we've shared with you guys. We're also going to sublease or we have plans to sublease on a temporary basis these locations to a seasonal tenant as we ramp these things up. So that will offset -- partially offset some of the rent. But -- we're really excited about these locations, and we think it says a lot that we're investing in our future in a downturn in the business. Cristina Fernández: Actually, 1 clarifying question. As we think about the store openings next year, will these 4 locations kind of meet your target for 5 openings a year or should -- could next year even go beyond those 5 openings?

I think next year could go beyond that. Yes.

That would be our hope.

Yes. We do have a number of sites that we're looking at, and have LOIs out that we think could work for us, but we don't know that. And we don't announce leases until they're signed. So it could be a year of more next year. Cristina, and I'll go back in our history at year 2000, we took over, I think, 9 Homelife stores from Sears able to open those over basically 18 months or so. So we're very good at converting existing boxes to Havertys and we think they're going to be opportunities for us.

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the call back to Richard Hare for closing remarks.

Well, we appreciate everybody's participation in the call today, and we look forward to talking to you in the future when we release our third quarter results later this year.

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