Key Highlights

● Sales and Earnings rose despite lower showroom traffic

● Larger tickets and steady conversion drove results

● Tariff refunds flattered gross margin

● First Pennsylvania location included in fourth-quarter openings

Haverty Furniture Companies, Inc. (NYSE:HVT), among the specialty furniture retailers operating showrooms across the South and Midwest, reported third-quarter results in which sales, comparable-store sales and earnings all rose from the prior-year period. The results came from a smaller flow of shoppers spending more per purchase, a dynamic chief executive Steven Burdette laid out on the conference call the same morning.

According to the market transcript of the call, Burdette said quarterly traffic declined by mid-single digits, while "conversion rates held steady" and the average ticket increased. Written business, the measure of orders taken as distinct from sales delivered, rose at a lower rate than delivered sales, both in total and on a comparable-store basis. The earnings release filed with the SEC showed that Diluted Earnings per Share climbed from a year earlier, and that Net Income and pre-tax income also increased.

Burdette framed the result in the release as extending the company's "positive momentum in written and delivered comp-store sales." He also listed the pressures surrounding that growth, among them tougher prior-year comparisons, a weak housing market, higher fuel prices, higher interest rates, geopolitical issues and rising input costs. That backdrop helps explain the company's emphasis on execution rather than on any recovery in demand.

The year-to-date figures in the release follow the same direction. Net sales, gross profit, pre-tax income and net income all exceeded the prior-year period, and diluted earnings per share rose. EBITDA, a non-GAAP measure, also advanced. The release identifies adjusted net income and adjusted diluted earnings per share for the same span, each of which stands below its reported counterpart.

Month by Month, a Choppy Summer

The monthly commentary on the call shows how uneven the period was. Burdette said the July Fourth weekend began slowly, with traffic and sales lower in the opening days of the month, before both improved so that written sales finished July higher. August and September brought a softer pattern, with traffic again lower by mid-single digits and written Business up only modestly over those months combined.

The Labor Day event was a notable soft spot. Burdette said the event experienced weaker traffic, and sales finished flat with the prior year. That comparison was demanding. Market commentary noted a year ago that Labor Day is the company's largest event of the year, and that written business for the holiday weekend had surged in the prior-year quarter. Overall written growth at that time also ran at a far quicker pace, which sets a high bar for the current year's results.

Asked by Sidoti analyst Anthony Lebiedzinski about any disruption tied to the midterm elections, Burdette said the news cycle in recent months had been a disruption across the company's footprint, "but the elections are over." He declined to discuss October, and he reported nothing notable in the way of regional differences. The company therefore offered no direct read on how the fourth quarter has begun, other than its comments on upcoming events and marketing.

Design Customers and Upholstery Lead the Mix

The product and customer mix offers some explanation for the larger ticket. Burdette said designer business grew during the quarter, and the release showed design consultants accounting for a slightly larger share of written business than a year earlier, at roughly a third of the total. Market commentary noted on the second-quarter call that design tickets were far larger than the company's overall average, so a greater design share tends to raise the average.

By category, Burdette said upholstery rose at a mid-single-digit rate and bedroom and dining at a low-single-digit rate, while mattresses and decor were lower by a low-single-digit rate. Year-to-date figures in the release confirm the larger picture, with the average ticket and sales per square foot each higher than in the same period of the prior year.

That category pattern marked a slowdown from the prior quarter. In August, every merchandise category had grown in the second quarter, with upholstery, bedroom, dining and occasional all posting double-digit gains. The third-quarter comments suggest growth continued in the larger categories but at a more measured rate.

Marketing and customer Acquisition connect directly to that mix. Market data of the second-quarter call said the company uses connected television, broadcast television, social media, other digital channels and direct mail aimed at winning new customers, and that new customers typically spend more than repeat customers. Burdette said at that time that "Appealing to both sets of customers, new and repeat, is vital" to overall growth.

What Tariff Refunds Did to the Margin

Gross Margin requires the most careful reading. The reported figure rose by about a couple of percentage points from the prior-year quarter, but the release shows that a meaningful part of the gain came from refunds of tariffs collected under the International Emergency Economic Powers Act. Excluding those refunds, gross margin rose only slightly from a year earlier. Chief financial officer Richard Hare said on the call that the refunds related to indirect Import programs.

The release also shows a further adjusted view that strips out both the refunds and the effect of LIFO inventory accounting, and that margin also rose modestly from a year earlier. The company's adjusted diluted earnings per share came in below the reported figure. Readers comparing the quarter against future periods will therefore want to distinguish the underlying margin from a benefit that depends on refunds, which the company's guidance treats separately.

Refunds were already a theme in the second quarter. In August, the company had recorded an initial batch of refunds at that time, split among cost of goods sold, inventory and interest income, and that further amounts on indirectly sourced products were being negotiated. In the latest release, the company said its full-year guidance excludes any further refunds it might receive for indirectly sourced products. That leaves room for future adjustments in either direction as those conversations continue.

Diesel, Containers and an Unresolved Tariff Decision

Costs beyond the merchandise line remain under pressure. Burdette said diesel fuel prices affect home delivery and transportation costs, and that high bunker fuel rates have sharply lifted the company's container rates. Even so, he said the company is "not entertaining right now any increases in delivery fees," a choice that keeps those expenses on the company's side of the ledger for the moment.

Tariff policy remains unsettled as well. Burdette said the company was waiting for confirmation from the administration about tariffs on upholstered wood furniture at the start of next year, and that other conditions were consistent with the second quarter apart from newer tariffs implemented in July. The release says guidance includes tariffs in effect as of the report date.

The company's approach has been shaped by earlier rounds of trade changes. Market commentary noted a year ago that Burdette said the company makes strategic price changes immediately once tariffs become known, and that it had moved production out of China to protect its special-order business. Market data of the second-quarter call added that refunds gave the company room to be more selective in adjusting retail prices.

Expenses Rise Faster Than Sales

Selling, general and administrative expense rose at a faster rate than sales in the third quarter and increased as a share of revenue. The release breaks the increase into variable and fixed categories. Variable costs rose, with selling expense lifted mainly by higher sales commissions and third-party Credit costs. Fixed and discretionary costs also rose, with administrative expense pushed higher by accelerated recognition of stock-based compensation, greater performance-based incentive pay and higher group insurance costs.

Hare said a large part of the increase in general and administrative cost related to accelerated vesting of stock awards. Burdette's comment in response to a question from Telsey Advisory's Cristina Fernandez pointed toward the broader challenge, as he said the company needs to "produce Volume to create the leverage" on some of the costs it faces.

Marketing moved modestly the other way. Burdette said the company is getting more from its Marketing spend, which was slightly lower for the quarter. Looking at the rest of the fourth quarter, he said the company would return as "very aggressive" in pushing through its remaining events, naming Veterans Day, the period after Thanksgiving and the New Year and after-Christmas sales.

Into Pennsylvania, and Reconciling the Store Count

The headline development in the store base is Pittsburgh. The release said the location represents the company's entry into its newest state, and Burdette said on the call that it would open. In the release he said the company was "energized" by its fourth-quarter openings, "highlighted by" that market entry. Market data had reported in August that the Pittsburgh location was among the planned second-half openings, alongside new Texas stores in McKinney, Baytown and Richmond and relocations in Fredericksburg, Virginia, and Snellville, Georgia.

The figures in the release alone appear not to add up, because its current showroom count plus planned openings exceeds its stated year-end total. The transcript resolves that gap. Burdette said the company ended the quarter with one fewer store than the current count in the release, which fits with his statement that McKinney opened at the end of October. He also said the plan included closing one store as part of a relocation. Starting from the quarter-end count, the openings and that single closure arrive at the stated year-end figure.

The pace represents a change from a year ago. Market commentary noted then that the company closed a Texas store in Waco, opened another Houston showroom and intended to return to a steady annual rhythm of new openings this year. Market data separately reported that Nashville and St. Louis opened in the second quarter. Together, those reports show a plan that has moved broadly as management described, with the fourth quarter carrying a large share of the year's openings.

A Debt-Free Balance Sheet Funds the Plan

The company finances that growth without borrowing. The release said it had no Debt outstanding, along with availability on its credit facility, although cash, cash equivalents and restricted cash were lower than a year earlier. Inventories fell from the prior-year level, and customer deposits rose.

Year-to-date Operating Cash Flow increased, but capital expenditures rose faster, leaving free cash flow slightly lower. The company stepped up capital returns: share repurchases were far larger than in the prior-year period, and dividends paid rose slightly, which together lifted total cash returned to shareholders substantially. Quarterly dividends per share edged higher for both Common Stock and Class A shares. Stockholders' Equity declined from a year earlier.

On credit quality among its customers, Hare said in response to a question that the consumer "is holding up well," citing Synchrony data that showed "very strong approval rates." This is a management characterization of its own customers and may not reflect furniture shoppers at large.

Inventory has also moved lower through the year. The third-quarter level sits below the figure Market commentary noted for the end of the second quarter, which had already declined from the end of the first. Unrestricted cash, meanwhile, was above the cash figure in that August report, indicating a build in Liquidity during the third quarter even with spending on new showrooms and capital returned to shareholders.

Guidance Moves Point in Different Directions

Full-year guidance was adjusted on some lines and left unchanged on others. The gross margin outlook was raised because of the tariff refunds. The variable selling, general and administrative expense outlook was also raised, which the release attributes to higher delivery, transportation and third-party credit costs. Fixed and discretionary expense guidance was unchanged, as was the Capital Expenditure plan, and the company set out an expected effective tax rate that excludes discrete items and any new legislation. The company noted that quarterly margins vary with promotional timing.

Read together, those changes suggest that the same forces raising one line are pressuring another: refunds support margin while freight and fuel raise operating costs. The next set of results will show how those pressures net out, along with whether traffic stabilizes, whether the ticket keeps climbing against stronger comparisons, and how quickly the Pittsburgh and Texas locations contribute. The company did not provide a sales forecast in the release, and Burdette's only forward-looking emphasis there was on "executing with discipline and creating long-term value."