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Text: Actual results may differ materially from those made or implied in such statements, which speak only of the date they are made and which we undertake no obligation to publicly update or revise.
Our Chairman and CEO, Clarence Smith, will now give you an update on our results.
And then, our President, Steve Burdette, will provide additional commentary about our business.
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 through the ongoing COVID concerns, significant product pricing increases, major hiring challenges, especially in warehouse and distribution, rising operating costs in 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 finally 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 sold 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 Haverty.
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 COVID shutdowns over 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 merchandising and supply chain teams have a strategy to soften this gap related to the Vietnam factory shutdowns.
We expect to end 2021 with 121 stores, one store over last year.
In 2022, we have plans to open five stores, netting three.
We're evaluating numerous opportunities for locations, which we can serve in our distribution footprint.
We've been pleased with our strategy of converting existing retail space to Haverty stores.
Recently, we've had very good results with stores in the 30,000 to 35,000 square foot size, a building size with more availability.
With the importance of our website and special order tools, we can present a large selection set of merchandise without requiring a much larger store.
We're in the process of planning 2022 capex.
We expect we will be in the same range as we had last -- this year, approximately $35 million net.
Investments in stores and renovations are the largest block.
Our single largest investment will be expansion of our Virginia Distribution Center, which we bought back earlier this year.
We're converting the facility from a regional home delivery center to a full distribution center to better serve our Atlantic Coast growth.
The expansion will allow us to receive direct shipments from the north port, reducing shipment cost and allow for quicker deliveries.
Our IT and marketing teams made major investments in remaking and upgrading our website to be the best in class industry leader.
We're focused on ease of use and inspiring our customers throughout the process, utilizing the Adobe platform.
It will align with an upgraded 3D floor plan, significantly improved graphics, design and search.
We're expecting the rollout of the new site early in the second quarter next year.
As we just released, our fourth quarter written sales were down approximately 3.5% from the same period last year with delivered sales up 17.5% over last year.
For perspective, this year's Q4 written sales to date are up 20.9% and delivered are up 41.5% over 2019.
We're having record delivery weeks as we receive more incoming sold product and are having much better inventory compared to last year.
As all of retail is struggling with the late shipments for Christmas, we also have real challenges in supply chain, and I would like to ask Steve Burdette, President, to give us an update on our supply chain status.
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 timeframe.
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 its shut down in late July and things accelerated in August where majority of our factories were closed for the months of August and September.
We are getting positive news from our vendors that 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 that they had in place.
Also, we continue to see shipments coming from Vietnam now.
Container capacity, container rates and port congestion continue to be areas of concern.
We expect these issues to continue well into 2022.
Our container prices on the spot market continued to increase during the quarter.
However, we are seeing a downward trend in October.
We continue to balance our shipping mix so that no more than 20% to 30% is on the water at one time at these spot market rates.
Due to our focus on ensuring that we could provide our customers with a more consistent flow of product, we incurred higher freight costs during the quarter and a substantial amount of demurrage and detention expense that we expect will be reduced significantly during the fourth quarter.
Staffing continues to be a concern as it is not only impacting our distribution, delivery and service areas, but it's impacting our manufacturers and trucking partners.
We continue to evaluate each of our areas of the business to ensure that we are competitive so that we are attracting the best talent.
We did start seeing some traction in the latter part of the quarter, but still have opportunities.
We consider our people our most valued asset as we know our service is what sets us apart from our competitors.
We have seen our average age of the undelivered pool continuing to increase to nine weeks from eight weeks over the quarter.
Our special order lead times have stabilized due to the improvement in foam supplies, and we have started seeing higher production quantities from our domestic suppliers over the last four weeks.
Our special order business is still suffering from these delays, but we feel confident that we will be able to see a bounce back due to a more confident sales team seeing the improvement in our lead times.
We remain optimistic for the fourth quarter.
Our teams are doing a wonderful job communicating with our customers regarding any delays with their products.
While there will be a slowdown in import receipts from Vietnam, we are expecting improved shipping times from our domestic suppliers and improvements in shipments from our bedding suppliers to help offset some of these delays.
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 cost.
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 four 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 includes 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 or $0.97 per share in the comparable quarter of last year.
Now looking at our balance sheet, at the end of the third quarter, our inventories were $119 million, which was actually up $29.1 million from the December 31, 2020 balance and up $28 million versus the Q3 2020 balance.
At the end of the third quarter, our customer deposits were $120.1 million, which was up $34 million from the December 31, 2020 balance and up $31.7 million versus the Q3 2020 balance.
We ended the quarter with $232.3 million of cash and cash equivalents.
We have no funded debt on our balance sheet at the end of Q3 2021.
Looking at some of the uses of cash flow.
Capital expenditures were $28.1 million for the first nine months of 2021 and we paid $13 million of regular dividends during the first nine months of 2021.
During the third quarter, we purchased $19.5 million of common stock as 537,196 shares.
As previously reported, our board of directors authorized an additional $25 million of share repurchases.
At the end of the third quarter of 2021, we had $22.3 million remaining under current authorization in our buyback program.
We continue to expect our gross profit margins for 2021 to be between 56.5% to 56.8%.
We anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes in our LIFO reserve.
Our fixed and discretionary type SG&A expenses for 2021 are expected to be in the $278 million to $281 million range, an increase over our previous estimate, primarily due to rising warehouse and demurrage costs.
The variable-type costs within SG&A for 2021 are expected to be in the range of 17% to 17.3%.
Our planned capex for 2021 remains at $37 million, anticipated new replacement stores, remodels and expansions account for $18.7 million, investments in our distribution network are expected to be $15.2 million and investments in our information technology are expected to be approximately $3.1 million in 2021.
Our anticipated effective tax rate for this year is expected to be 24%.
This projection excludes the impact from vesting of stock awards and any potential new tax legislation.
This completes my commentary on the third quarter financial results.
We are very pleased with the record performance here underway.
We're comparing well with the second half records of 2021 and against 2019.
We believe that the pneumatic 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 in 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.
Haverty's 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.

user
q3 earnings per share $1.31.
q3 same store sales rose 17.7 percent.
q3 sales rose 19.7 percent to $260.4 million.
qtrly comparable store sales increased 17.7%.

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