Haverty Furniture Companies - Earnings Call - Q2 2025

Executive Summary

• Havertys delivered modest top-line growth with net sales of $181.0M (+1.3% YoY) and maintained strong gross margin (60.8%), but EPS fell to $0.16 on higher SG&A as a percent of sales (59.3%) and a higher quarterly effective tax rate; comps were -2.3%.
• Bold beat on both revenue and EPS versus Wall Street consensus*, reflecting marketing-driven traffic and conversion improvements despite tariff uncertainty and ongoing housing softness*.
• Management maintained FY 2025 gross margin guidance (60.0%–60.5%) and fixed SG&A ($291–$293M), lowered variable SG&A (18.5%–18.8%), and kept CapEx at $24M; retail square footage now expected to be flat vs 2024, a reduction from prior guidance.
• Catalysts going forward: Q3 resumption of special orders (China vendors) and continued marketing/price architecture efforts; watch tariff implementation details and promotional intensity across the industry for margin cadence.

What Went Well and What Went Wrong

What Went Well

• First increase in written and delivered sales in over two years; Memorial Day event drove double-digit traffic and strong conversion, with web sales up 8.4% and organic traffic +15.6% following an Adobe Edge rollout.
• Gross margin expanded 40 bps YoY to 60.8%, underscoring merchandising discipline; management maintained full-year margin guidance despite tariff uncertainty.
• CEO highlighted AI-driven digital advertising and differentiated in-house final-mile delivery as competitive advantages; “our debt-free balance sheet” and brand strength position Havertys to capture share.

What Went Wrong

• Comparable store sales declined 2.3%; EPS fell to $0.16 vs $0.27 last year on higher SG&A and a quarterly effective tax rate of 37.8% (vs 31.2% LY).
• Temporary suspension of special orders from China due to a sudden 145% additional tariff (later reduced to 30%) pressured design/special order sales mid-single digits.
• Promotional environment intensified industry-wide; Havertys increased advertising (+$1.1M) and ran 60-month financing while credit usage remained stable—supportive for traffic but elevates cost intensity.

Transcript

Operator (participant)

Greetings and welcome to the Haverty Furniture Companies, Inc. Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Hare, CFO. Thank you, sir. You may begin.

Richard Hare (CFO)

Thank you and good morning. During this conference call, 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 and CEO, Steve Burdette, will now provide additional commentary about our business.

Steve Burdette (President and CEO)

Good morning. Thank you for joining our 2025 Second Quarter Conference Call. We are excited to report our first increase in written and delivered sales for Q2 in over two years. While this progress is encouraging, we remain focused on returning to positive same-store sales. Our sales for Q2 were $181 million, which was up 1.3%, with comps down 2.3%. Total written sales were up 0.4%, with comps down 2.1%. Gross margins continue to show our discipline and consistency, coming in at 60.8% compared to 60.4%. Our pre-tax profits for the quarter were $4.3 million, or 2.4% operating margin, compared with $6.5 million, or 3.6% operating margin in Q2 2024. Our EPS for the quarter came in at $0.16 compared to $0.27. Richard will provide additional details later in this call regarding the increase in SG&A expenses for the quarter.

During the quarter, we continue to see a struggling housing market with high interest rates and rising home prices, lack of clarity around tariffs, inflation concerns, ongoing geopolitical issues, and consumer confidence remaining low. Despite all this noise in the economy, the consumer has remained amazingly resilient. Traffic in the quarter remained positive in the mid-single digit compared to the same period last year. Our average ticket decreased slightly but remained strong at just under $3,400, while designer average ticket continued to grow at approximately 5% to over $7,600. However, our overall design and special order business was down mid-single digits for the quarter. A portion of the decrease can be attributable to the 145% additional tariffs placed on China imports in early April, which caused us to temporarily suspend our special order capabilities from our China vendors.

We got more clarity in mid-May when the additional China tariff was reduced from 145% to 30%. During the quarter, our supply chain and merchandising teams have been realigning our production moves out of China with our import vendors. We should be fully operational in Q3, allowing us to resume our special order business. Conversion rates showed a nice improvement in the quarter, moving from a double-digit decrease in Q1 to a mid-single digit decrease in Q2. Memorial Day is the company's largest event in the first half of the year. Sales increased by just over 3% during the two-week period and by more than 14% over the four-day period. The company noted improvements during the four-day event in all key metrics. Traffic was up double digits, average ticket was just under $4,000, and conversion rates were consistent with last year.

Our marketing creative and media plans continue to reach our customers through broadcast, OTT, and digital marketing channels. We continue to use AI algorithms to learn from our first and second-party data to ensure our digital ads are efficient and more effective in driving engaged site traffic. In June, we converted all product page traffic and listing page traffic, in addition to the homepage, which was converted in Q4 to Adobe Edge delivery service. Since this change, we have seen a 15.6% increase in organic traffic, which we feel this, combined with the more engaged site traffic, has contributed to our web sales growth of 8.4% for the quarter. We invested an additional $1.1 million over the quarter to get our messaging out, as we promoted 60 months no interest to be more competitive and strengthen our credit offerings. However, we did not experience an increase in our credit usage.

In fact, our overall credit cost for the quarter decreased double digits compared to last year's Q2. We implemented a more aggressive promotional strategy by increasing sale offerings both externally and internally. The loyalty email campaign referenced in the Q1 call generated approximately $17 million in Q2, resulting in a year-to-date total of over $25 million, with an average ticket of just under $2,800, which contributed to our slight decrease in our overall average ticket for the quarter. A merchandising team returned from a trip to Vietnam in early May, where they followed up with our vendors on their progress with the movement of our products out of China. The trip was very informative and productive, as it enabled the team to reassure our vendors of our commitment to our strategic partnerships.

From a category performance, upholstery and bedroom outperformed all other categories with positive sales in the low to mid-single digits, followed by bedding and occasional, which were down low single digits, and dining room and decor, which were down high single digits. As mentioned in our last call, we are rolling out our new point of purchase and tagging program in Q3. As a reminder, this should improve the in-store customer's experience by centralizing our special order fabrics to improve the ease of choice while introducing a new tagging system that visually provides our customers with more choices that are not shown on the floors. Also, it simplifies for our sales and design consultants the available configurations by collection. Our goal is to have this fully implemented by the end of Q3 in all stores.

While the tariff issues are continuing to create uncertainty within the industry, our merchants are proactively working with our vendors and preparing for potential price changes once the tariffs are finalized. The team's preparation and communication give us confidence to maintain our current gross margin guidance. There is a possibility that some products will return to being manufactured in China, depending on how tariff policies develop in other countries. Decor and lighting products may remain in China if new tariff rates make it more economical compared to establishing production facilities elsewhere. In Vietnam, there are concerns about potential labor shortages and wage challenges resulting from increased production demands. Resolving the uncertainties around tariffs will allow us to be more focused on serving our customers' needs. Our supply chain team executed a strategy to increase inventories of best-selling products during Q2. Inventories rose approximately $4.6 million, or about 5% since Q1.

We anticipate that inventories will remain relatively flat for the remainder of the year. We continue our push to open five new stores a year. However, in 2025, we will open two new stores in Houston, Texas, and one relocation in Daytona Beach, and we'll be closing two locations, one in Atlanta and one in Waco, Texas, leaving us with 129 stores at year-end. We have finalized four additional leases for 2026 openings that we are able to announce. In Q1 2026, we will open our second store in the St. Louis market in the Fenton area, southwest of the city. In Q2 of 2026, we will open our fourth store in the Nashville market in the Mount Juliet area, east of Nashville.

The other two leases will be in the Houston market, the Alliana area, southwest of Houston, and the Baytown area, east of Houston, opening in the latter part of 2026, giving us five stores in the market. As you can see, we are actively looking at opportunities to grow our footprint to allow us to leverage our customer, our current distribution network, and return to our five new stores a year goal in 2026. Our distribution, home delivery, and customer service teams continue to do an excellent job controlling expenses while furnishing happiness to our customers. Each team does a great job of balancing the number of team members to the workflow demand needed due to natural turnover. Our success in distribution, home delivery, and customer service is due to Haverty team members controlling all aspects of the final mile delivery to the customer.

We do not outsource any of these key functions of our business to a third-party company, and we are proud that our regret-free experience is an integral part of our unwavering service that helps separate us from our competitors. Throughout our 140-year journey, we have navigated economic headwinds similar to today's challenges: housing affordability, high interest rates, tariffs, inflation concerns, and geopolitical uncertainties. What sets us apart is our trusted Haverty brand, our debt-free balance sheet, our operational consistency, our integrity, our consumer-focused in-home design, and our dedicated Haverty team members. Looking into the future, these competitive advantages position us to capture market share. I will now turn the call over to Richard.

Richard Hare (CFO)

Thank you, Steve. In the second quarter of 2025, we reported net sales of $181 million, a 1.3% increase over the prior year quarter. Comparable store sales were down 2.3% over the prior year period. Our gross profit margin increased 40 basis points to 60.8% from 60.4%. This increase was due to product selection and merchandising mix that Steve mentioned previously. Selling, general, and administrative expenses increased $4.2 million, or 4.1%, to $107.3 million. As a percentage of sales, these costs approximated 59.3% of sales, up from 57.7% in the prior year's quarter. Within this expense category, we experienced increases in advertising, occupancy, and administrative costs, which was partially offset by decreases in selling and warehouse and delivery expenses. Other income expense in the second quarter of 2025 was $65,000, and interest income was approximately $1.5 million. Income before income taxes decreased $2.1 million to $4.3 million.

Our tax expense was $1.6 million for the second quarter of 2025, which resulted in an effective tax rate of 37.8% compared to an effective tax rate of 31.2% in the prior year period. The primary difference in the effective rate and statutory rate is due to expected state income taxes and additional tax expense associated with the vesting of stock awards. Net income for the second quarter of 2025 was $2.7 million, or $0.16 per diluted share on our common stock, compared to net income of $4.4 million, or $0.27 per share in a comparable quarter last year. Now, turning to our balance sheet, at the end of the second quarter, our inventories were $93.3 million, which was up $9.9 million from December 31, 2024, and up $900,000 versus Q2 of 2024.

At the end of the second quarter, our customer deposits were $39.4 million, which was down $1.4 million from the December 31, 2024 balance, and up $600,000 versus the Q2 2024 balance. We ended the quarter with $107.4 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the second quarter of 2025. Looking at some of the cash flow usage, CapEx was $5.6 million for the second quarter of 2025, and we also paid out $5.2 million of regular dividends in the quarter. We did not purchase any common shares of stock under our share repurchase program during the second quarter of 2025, and we have approximately $6.1 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics.

I will highlight a few, but please refer to our press release for additional commentary. Our 2025 guidance includes tariffs currently in effect as of July 30, 2025, and does not include the effects of additional proposed tariffs that are not finalized by the Trump administration. We continue to expect our gross margins for 2025 to be between 60% and 60.5%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs. Our fixed and discretionary type SG&A expenses for 2025 are expected to be in the $291 million-$293 million range, which is unchanged from our previous guidance. The variable type costs within SG&A for 2025 are expected to be in the range of 18.5%-18.8%. We anticipate continued efficiencies in warehouse and delivery costs during the remainder of this year. Our planned CapEx for 2025 remains at $24 million.

Anticipated new or replacement stores, remodels, and expansions account for $19.6 million. Investments in our distribution network are expected to be approximately $1.8 million, and investments in our information technology are expected to be approximately $2.6 million. Our anticipated effective tax rate in 2025 is expected to be 26.5%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the second quarter financial results. Operator, we would like to open the call up for questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Anthony Lebiedzinski with Sidoti & Co. Please proceed with your question.

Anthony Lebiedzinski (Senior Equity Analyst)

Good morning, and thank you for taking the questions, and it's certainly nice to see the sales and gross margin increase in the quarter. First question here is just, can you guys speak to the cadence of your written sales throughout the quarter and whether or not you saw any notable regional differences in your performance?

Richard Hare (CFO)

Sure, Anthony. High level, our written business was down around 2% in April. It was up slightly, almost to 1% in May, and it was up around 2.5% in June. That's the cadence for the written business. Our delivered business for the quarter was, we were up around 5% in April, then around 2% in May, and then slightly down around almost 3% in June. Steve, you want to highlight any of the regional?

Steve Burdette (President and CEO)

Yeah, Anthony. I would say it's pretty much across the board in all of our districts. We didn't see anything. We had some regions that performed a little bit better, but we saw that all of them were trending right in the same direction as we're seeing ourselves.

Anthony Lebiedzinski (Senior Equity Analyst)

Gotcha. Thanks for that. Is there any way you guys can quantify what the impact may have been as far as your decision to suspend some of the special orders from China? You know, how much impact that was on your same-store business?

Steve Burdette (President and CEO)

That's hard to sit there and quantify for us, Anthony. I mean, we know it is, we feel like it certainly impacted our design business, you know, as far as the ability there is the number of customers, the % of business we were doing. We have not been able to quantify that, you know, exactly what the impact is overall. It affected certain groups out of China that we were unable to, as we were moving the production, we just had to focus in on the, you know, the core items that we were carrying on the floor. The special order items we had just had to pause. We feel we'll be back onto that in Q3 with all vendors and feel real good about what the merchandising supply chain teams have been able to do working with our vendors.

Anthony Lebiedzinski (Senior Equity Analyst)

Gotcha. Okay. In terms of the tariff impact, have you guys taken any pricing actions or do you expect to do that in your back half? Kind of how you're thinking about that?

Steve Burdette (President and CEO)

Yeah, we did in May. We took some beginning of May with the initial, the 10% that came across. As I just said in my comments there, we're poised and ready to go based on what the tariffs end up with. We're just waiting on a final answer, Anthony, quite honestly. I mean, we're sitting here on July 31. They go live tomorrow and nothing's been posted out there to the registry. We understand there's a 20%. We understand there's a deal with Cambodia that we deal with. We understand China is going to be extended out further. Indonesia's got a deal out, but there's nothing out on the site that's been posted out there on the registry to let us know exactly how to move forward with it. We're prepared and we're ready to go.

Our merchants have already been talking with our vendors and we're prepared with, if we take on more tariffs, we will make adjustments in the pricing accordingly.

Anthony Lebiedzinski (Senior Equity Analyst)

Gotcha. At this point, your gross margin guidance does, just to be clear, your gross margin guidance does not include any pricing actions right now, right? Is that fair to say?

Richard Hare (CFO)

I'd say that you saw our margins went down slightly Q1 versus Q2. We still feel good about the margin guidance. There's a little bit of, you know, we could have had more promotions, gives us the opportunity to do that. You do have some unknowns of the tariffs. We'll pass along most of the price increase, but there's a little buffer of that in the margin guidance.

Steve Burdette (President and CEO)

We feel comfortable with that guidance. You know, even with what's coming, Anthony, we feel comfortable with it that we'll be able to manage through that.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay. As far as just thinking about the different marketing and promotional strategies, it sounds like you guys are upbeat about that concern. As we look at the back half of the year, which ones, which of these strategies do you think will be the most impactful in terms of driving comparable store sales?

Steve Burdette (President and CEO)

I’d say definitely our new pricing strategy that we put in place that really was in effect as of May 1, with the team with the stores. We’ve seen a positive impact with that. I think our marketing and what we’re doing with the small market plan that we attacked them with a separate individual plan is working and helping to drive traffic in those stores. I think the mailer that we did was a huge success that basically ended at the end of the quarter. That turned out to be a huge success in driving conversion rates, but also traffic to the stores. We invested more. We talked about that in the second quarter. We’re going to continue that investment and invest more in the third quarter in our marketing. One successful Memorial Day, we extended that promotion from basically two weeks to three weeks.

From a marketing perspective, we’ll do the same with Labor Day. We’re going to get back into the direct mail business. We’ve got a new direct mail that will go out the beginning of August that we’re excited about to see that impact that it’ll have across our markets overall. We’ve got a lot going on. We feel real positive about it. We feel good about the trend and what we’ve seen. If you look from fourth quarter to first quarter to where we are today, we’ve seen gradual improvement and our goal is to get back to positive same-store sales and grow it from there.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Thank you very much, and best of luck.

Steve Burdette (President and CEO)

Yep. Thanks, Anthony.

Anthony Lebiedzinski (Senior Equity Analyst)

Thanks.

Operator (participant)

Our next question comes from Christina Fernandez with Chelsea Advocacy Group. Please proceed with your question.

Christina Fernandez (Managing Director and Senior Research Analyst)

Hi, good morning. I wanted to ask about the promotional environment you're seeing across the industry. It seems like it's picked up a little bit, and you as well have used promotions to drive traffic. I guess your thoughts on the industry and the environment, and how do you plan to use promotions going forward, you know, strategically so it drives traffic, but at the same time doesn't depress margins or, you know, change the perception of the brand?

Steve Burdette (President and CEO)

Yeah. No, you know, Christina, we feel good about where our promotions are and what we're doing and what our marketing plan is. I mean, we've increased, we felt like we were a little light coming out of the first quarter. With the trends that we were seeing with traffic remaining positive and sales and with our pricing policies that we were getting out with a little more aggressive pricing, we needed to invest more in marketing to get that message out. We're going to continue that. We're going to amp that up a little bit in the third quarter, even more. Labor Day is our obvious, the biggest event of the year. Memorial Day is second to that of Labor Day. We're excited for that and what it can do. Everything we got set, we're not doing anything to go against our brand.

I think everything fits right into what we're doing and getting our message out to the consumer and how we want to serve them. As far as our competitors, they're certainly aggressive in pushing out there. You're seeing more pricing discounts. I think you're seeing a lot of the ones that run the percentages off have gone up in those percentages somewhere anywhere from 5% to 10% to get more aggressive. They're offering clearance products, things of this nature. We're going to continue to do and make sure we offer what we do and provide the service to our customers and be consistent with it, but we're going to do it a little bit more aggressively. I mentioned to you the 60 months. We had not run that in almost a year. We did that in the second quarter. We put it on Memorial Day.

We put it on the website. We didn't actually put it in any of our TV ads that were run through broadcast and OTT. We will be adding that into the third quarter. We're going to get a little bit more aggressive with that. As I said, the customer, we're still not seeing an increase in our credit usage and we're actually seeing credit costs in the second quarter went down compared to last year. They still don't need the 60 months, but it's nice to have it out there as a competitive advantage against those that are running it.

Christina Fernandez (Managing Director and Senior Research Analyst)

My second question is, as it relates to pricing, I understand the need to have to raise prices more to offset the tariff. Can you talk about what you've seen so far from the consumer in those products where you raise prices? Are you seeing any pushback? Do you feel like the consumer can absorb higher prices as most retailers will have to raise prices more if these tariffs get finalized?

Steve Burdette (President and CEO)

At this point, we have not seen an impact. As a matter of fact, our unit sales now follow pretty much to what our sales are in general. That is a good thing. That was not the trend back in the early part of the pandemic and coming out of it in 2021, 2022. We have recovered on that. Our unit sales are now trending to what our overall sales are, and we're encouraged by that. We are going to be very strategic in how we execute these pricing changes. Where we can get more, we will get more, and where we have to stay aggressive, we'll stay aggressive. The end result will be that we will still be able to maintain our margin guidance that we've given y'all of 60% to 60.5%. Christina, we're encouraged by the trend. Traffic remains positive.

We've seen it from the fourth quarter to first to second. We've seen our business get better, and we certainly are optimistic and encouraged.

Christina Fernandez (Managing Director and Senior Research Analyst)

My last question is on real estate. I think if I understood your comment correctly, it seems like some store openings are getting pushed to 26% from 25%. Can you confirm if that's the case? What are you seeing from the real estate environment broadly? Do you feel confident in your ability to have those five openings at a reasonable rent?

Steve Burdette (President and CEO)

Yes, they are. Rents have not gone down, though. I will tell you that. Now, I will say, if you noticed back on our first quarter call, we had told you that we had reduced our CapEx at that point. We kind of put on hold things for, you know, 60 to 90 days. We had some deals going and looking at things. We've gotten back into that. We feel more comfortable now. You heard us mention about the Fenton St. Louis store. That was one we were hoping going to open this year. It got pushed into next year. The Mount Juliet store, we were able to just finalize that lease in Nashville, and that store will open in Q2. Those are existing stores. The Fenton store is an old Big Lots store, and then the other store in Mount Juliet is a JoAnn store.

We feel good about those boxes being converted. The two Houston stores are basically builds, so those are going to take a little bit longer to get executed and brought in line. Our goal is to get back to that five stores a year. We won't make it this year. We'll end up flat at 129 stores, which is where we were at the end of the year in 2024. We do feel encouraged with what we got going right now. It's still, you know, we're still looking. We got things that we're looking at right now, new markets, as well as adding existing markets.

Christina Fernandez (Managing Director and Senior Research Analyst)

Thank you.

Steve Burdette (President and CEO)

Yes, ma'am.

Operator (participant)

There are no further questions at this time. I would now like to turn the floor back over to Richard Hare for closing comments.

Richard Hare (CFO)

Thank you for your participation in today's call. We look forward to talking with you in the future when we release our third quarter results later this year.

Operator (participant)

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