Havertys (HVT) Q3 2026 Earnings Call: Sales Growth and Higher Margin Guidance

Key Takeaways

• Havertys reported Q3 2026 net sales of $203.2 million, up 4.5% year over year, while comparable-store sales increased 4.1%.
• Gross margin expanded 200 basis points to 62.3%, supported by $3.2 million of tariff refunds. Excluding those refunds, gross margin was 60.7%.
• Diluted EPS rose to $0.39 from $0.28. Excluding tariff refunds, net income was $4.0 million, or $0.25 per diluted share.
• Traffic declined by mid-single digits, but conversion remained steady and average ticket increased 7.4%, primarily due to pricing.
• Management raised its 2026 gross-margin guidance to 61.3%-61.5% but increased its variable SG&A outlook due to higher delivery, transportation and third-party credit costs.
• Havertys ended the quarter with $120.3 million in cash, no funded debt and $100 million available under its revolving credit facility.

Core Financial Data

SG&A rose to 58.6% of sales from 57.8%. Higher commission-based compensation, third-party credit costs, stock-based compensation, incentive compensation and group insurance costs drove the increase. Management said approximately $2 million of the G&A increase reflected accelerated stock-award vesting and should not recur in the near term.

Business and Operating Performance

Quarterly traffic fell by mid-single digits, but steady conversion and a 7.4% increase in average ticket supported sales growth. Management said pricing remained the primary driver of the higher average ticket, while units per ticket were broadly flat.

The designer business grew 4% and represented 34.6% of total business. Designer average ticket increased 7.2%. Custom orders rose 16.9% and accounted for 31.4% of upholstery sales.

By category, written upholstery sales increased by mid-single digits. Occasional, bedroom and dining sales rose by low single digits, while mattresses and décor declined by low single digits. Written e-commerce sales delivered another quarter of double-digit growth as organic website traffic improved.

Inventory declined from $100.5 million at the end of Q2 to $86.7 million at the end of Q3. Management said the reduction went too far and expects year-end inventory of $90 million-$100 million to support customer delivery expectations.

Havertys ended Q3 with 129 stores and expects to finish 2026 with 133. The company entered Fredericksburg, Virginia, during the quarter and said the location was outperforming traffic and volume expectations. Its Pittsburgh opening marks entry into an 18th state, while additional Q4 activity includes stores or relocations in McKinney, Snellville, Baytown and Richmond.

Management Guidance

Havertys expects 2026 gross margin of 61.3%-61.5%, raised from its previous outlook due to tariff refunds. The forecast includes tariffs in effect as of November 4, 2026, but excludes potential future refunds on indirectly sourced products.

Fixed and discretionary SG&A is expected to remain between $307 million and $309 million. Variable SG&A is now projected at 19.2%-19.4%, reflecting higher fuel-related delivery and transportation expenses and increased third-party credit costs.

Management maintained planned 2026 capital expenditures at $34 million. This includes $27.7 million for new or replacement stores, remodels and expansions, $3.2 million for the distribution network and approximately $3.1 million for information technology. The anticipated effective tax rate remains 26%, excluding stock-award vesting effects and potential new tax legislation.

Risks and Areas to Watch

• Container rates have increased 25%-30% due to elevated bunker fuel costs, while diesel at roughly $6 per gallon is pressuring delivery, transportation and material expenses.
• LIFO, health insurance and consumer financing costs continue to rise. Havertys is tightening access to long-term no-interest promotions outside key promotional periods and making selective retail price changes.
• The company is monitoring possible changes to Section 232 tariffs on upholstered wood furniture and uncertainty surrounding the U.S.-Vietnam reciprocal tariff arrangement.
• Container availability, enhanced U.S. Customs and Border Protection inspections, Vietnam labor availability and a required 7% Vietnamese wage increase on January 1, 2027, could extend lead times.
• Management said supply-chain disruption has been minimal so far but will monitor conditions approaching Chinese New Year in early 2027.

Analyst Q&A Highlights

Management reported no notable regional variation in Q3 trends. It attributed most of the average-ticket increase to pricing and sees further potential from expanding participation in its design program from roughly 17% of customers toward approximately 25%.

Havertys plans to remain aggressive with marketing through the rest of Q4 and into 2027 after election-related political advertising displaced some of its television placements. Management did not quantify the effect.

On consumer health, Havertys said financing approval rates remained strong. Among customers using Synchrony, nearly 90% of in-store applicants with credit scores above 750 were approved. Approximately one-third of customers use Synchrony financing.

The company is using selective price increases and tighter controls on promotional financing to offset inflationary pressure. Management said it is not currently considering higher customer delivery fees.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Welcome to the Havertys Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Tiffany Hinkle, Assistant Vice President of Financial Reporting and Investor Relations. Thank you, Tiffany. You may begin.

Tiffany Hinkle

Thank you, operator. Good morning, and thank you for joining us for our third quarter earnings call. I'm here today with our President and CEO, Steve Burdette; and Executive Vice President and CFO, Richard Hare. Before we begin, I'd like to remind everyone that today's conference call may contain forward-looking statements, which are subject to risks and uncertainties.

Actual results may differ materially from those made or implied in such statements, which we 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.

We will also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in our earnings release. A replay of this call will be available on our Investor Relations website this afternoon. For commentary about our business, I will now turn the call over to Steve.

Steven Burdette

Thank you, Tiffany. Good morning, and thank you for joining our 2026 third quarter conference call. Q3 was another strong quarter with increases in written and delivered comp sales against tougher year-over-year comps. Net sales were $203.2 million, up 4.5% with comp sales up 4.1%. Total written sales increased 2.8% with written comp sales up 2.3%. Additional tariff refunds received during the quarter contributed to gross margin expanding to 62.3% compared with 60.3% last year.

Pretax income was $8.6 million or 4.2% of sales compared with $6.4 million or 3.3% of sales a year ago. Earnings per share was $0.39 versus $0.28 a year ago. Richard will discuss the impact of tariff refunds on gross margins, higher interest rates on credit costs, increase in stock expenses and higher oil prices on delivery, transportation and material costs.

Quarterly traffic declined by mid-single digits, but conversion rates held steady and average ticket rose 7.4%. Written sales varied monthly with the Labor Day event calendar shift. Our July 4 weekend sales started slowly with traffic and sales down during the first 6 days.

The decline can be attributed to many nationwide celebrations of our country's 250th anniversary and July 4 itself falling on a Saturday. Traffic and written sales improved through the rest of July with written sales ending the month up 5.1%.

Given the 1-week calendar shift in Labor Day, we believe August and September are best viewed together. Across those 2 months, traffic remained down mid-single digits, while business increased 1.7%. The 2-week Labor Day event experienced weaker traffic, but we were able to end the 2-week promotion with flat sales compared to last year due to a strong average ticket and steady conversion rates.

Our designer business grew 4% for the quarter, accounting for 34.6% of our business with designer average ticket growing 7.2%. Custom orders rose to 31.4% of our upholstery business, increasing 16.9% over last year. From a category perspective, our written business saw upholstery rise mid-single digits with occasional, bedroom and dining up low single digits and mattresses and decor were down low single digits.

Our merchandising and supply chain teams continue to push to bring in new exciting projects -- products across the merchandise assortment. We are hearing that container availability, Custom Border Protection's enhanced inspections and in Vietnam, the labor availability, along with the government's required 7% wage increase on January 1, 2027, are becoming issues.

We are seeing lead times getting pushed out but we have seen minimal impact on our partners and our supply chain network at this point. As we approach Chinese New Year in early 2027, we will be watching closely for any further disruptions and adjust our ordering patterns accordingly.

Our inventories dropped from $100.5 million at the end of Q2 to $86.7 million at the end of Q3. The efforts by our supply chain to get control of our inventories took a pendulum swing too far during the quarter. We expect to end the year somewhere between $90 million and $100 million, depending on product flow and sales. This is the level of inventory needed to meet our customers' delivery expectations.

Regarding tariffs, all things remain consistent from Q2 with the new Section 301 tariffs implemented in July. However, we are waiting for confirmation from the administration if Section 232 tariffs on upholstered wood furniture will go from 25% to 30% effective January 1, 2027.

Also, we are hearing rumors that the governments of Vietnam and the U.S. have had meetings to finalize the reciprocal agreement between the countries that would remove the current Section 301 tariff of 12.5% imposed in July for a potential higher tariff percentage.

We will make the necessary targeted adjustments in our pricing if these changes occur, but we'll not get ahead of ourselves as this is a fluid situation. As discussed on our Q2 conference call, bunker fuel rates remain high, causing a 25% to 30% increase in our container rates. Diesel fuel at roughly $6 per gallon impacts home delivery and transportation costs as well as material costs, which are up mid-single digits.

LIFO costs are not slowing. Health insurance costs continue to rise and credit costs are becoming more expensive due to usage and interest rate increases. The tariff refunds of $3.2 million helped to offset some of these increases during the quarter.

Our ability to leverage these increases is becoming more difficult in this environment. However, we continue to get more from our marketing spend, which was slightly lower for the quarter. Organic traffic to our site keeps improving, driving double-digit growth in written e-commerce sales for another quarter.

To stay competitive, we continue to offer aggressive no-interest credit promotions such as 48-month and 60-month terms during the promotional periods. But we are implementing tighter controls on their use outside of the promotional periods by raising the average ticket amounts allowed for each promotion.

Our use of AI continues to expand into more customer-facing areas, including customer chat, sales and designer interfaces, marketing, supply chain and home delivery. We believe this helps our team quickly share the most relevant and accurate information with customers, creating a better overall experience.

Ultimately, the way we engage with every customer along their journey creates unmatched value and sets Havertys apart from our competition. We ended the quarter with 129 stores. During the quarter, we opened a new market in Fredericksburg, Virginia, which we are pleased to report is outperforming our traffic and volume expectations.

We plan to open 5 new stores in Q4 and close one that will be a relocation. McKinney, Texas, a suburb of Dallas opened October 30. Pittsburgh, Pennsylvania will be opening tomorrow, marking our entry into our 18th state. Snellville, Georgia, a suburb of Atlanta will be relocated to a larger and better location next week and Baytown and Richmond, Texas, both suburbs of Houston, opened in late November and early December, giving us 5 stores in the market.

Also, we finalized the closing of our College Station, Texas store on August 31. The ongoing refresh of our mattress departments and design centers remains on track for completion in all stores in 2027. These improvements provide us with big opportunities to grow these 2 important categories.

We will continue to evaluate our existing leases and locations so that we are reinvesting our capital to create the biggest return for our shareholders. We expect to end the year with 133 stores, and we have several new stores in lease negotiations for 2027 that we hope to be able to announce on our next call.

We are optimistic about finishing the year strong. While many headwinds remain, today, we have turned the page on what we believe has been our biggest headwind over the last few months, the midterm elections. Hotly contested races in Florida, Texas, Georgia, North Carolina and South Carolina, where roughly 2/3 of our stores are located, created disruptions in our marketing plans.

More broadly, the news cycle over the last 60 days across our entire footprint was a disruption, but the elections are over. As the country moves forward, we expect our customers to quickly put the midterms behind them and focus on their future.

Looking ahead, our optimism rests on 4 things: first, our people, who share the belief that we must outserve our competition. Second, our design program, which inspires customers and gives them confidence in their decisions with tremendous upside potential. Third, our organic store growth strategy of opening 5 stores a year, which further strengthens and expands the brand; and fourth, our execution with roughly 2,400 team members across 18 states whose hard work, dedication and passion for serving customers, fellow team members and shareholders is contagious and appreciated. I will now turn the call over to Richard.

Richard Hare

Thank you, Steve, and good morning. In the third quarter of 2026, net sales were $203.2 million, a 4.5% increase over the prior year quarter. Comparable store sales were up 4.1% over the prior year period. Our gross profit margin increased 200 basis points to 62.3% from 60.3%. Excluding the impact of approximately $3.2 million in tariff refunds recognized in the quarter, our gross profit margin was 60.7% in the third quarter of 2026 compared to 60.3% in the prior year quarter.

Further, excluding the impact of LIFO, a $1 million expense in the third quarter of 2026 and a $624,000 expense in the prior year quarter, our adjusted gross profit margin was 61.3% in the third quarter of 2026 and 60.6% in the prior year quarter.

Selling, general and administrative expenses increased $6.7 million or 6% to $119 million. As a percentage of sales, these costs approximated 58.6% of sales, up from 57.8% in the prior year's quarter. We experienced an increase in selling expense of $1.8 million, primarily due to higher commission-based compensation and third-party credit costs and an increase in administrative expenses of $4.1 million, primarily from stock-based compensation subject to acceleration recognition, performance-based incentive compensation and increased group insurance costs.

Other income expense in the third quarter of 2026 was $20,000 and interest income was approximately $983,000 in the third quarter of 2026. Income before interest and income taxes increased $2.3 million to $7.6 million. Our tax expense was $2.2 million for the third quarter of 2026, which resulted in an effective tax rate of 26% versus 26.4% in the prior year period.

The primary difference in the effective tax rate and the statutory rate is due to state income taxes and the impact of vesting on stock awards. Net income for the third quarter of 2026 was $6.3 million or $0.39 per diluted share on our common stock compared to net income of $4.7 million or $0.28 per share in the comparable quarter last year.

During the third quarter, we recognized approximately $3.2 million in tariff refunds related to our indirect import programs as a reduction in cost of sales. Year-to-date through September 30, 2026, we have received approximately $5.4 million in tariff refunds related to our direct and indirect programs, of which $4.7 million was recorded as a reduction to cost of goods sold, $170,000 was recorded as a reduction to inventory and $67,000 was recorded as interest income and the remainder was rebated to certain supplier partners.

Excluding the impact of the tariff refunds on our income statement, our net income for the quarter was $4 million or $0.25 per diluted share. Now turning to our balance sheet. At the end of the third quarter, our inventories were $86.7 million, which was down $9.5 million from December 31, 2025, and down $5.7 million versus Q3 of 2025.

At the end of the third quarter, our customer deposits were $46.2 million, which was up $10.7 million from December 31, 2025, and up $2.4 million from Q3 2025. We ended the quarter with $120.3 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the third quarter of 2026, and we have credit availability of $100 million under our revolving credit facility.

Looking at some of the cash flow usage, capital expenditures totaled $23 million in the first 9 months of 2026, and we paid out $15.8 million of regular dividends year-to-date. We did not participate in our share repurchase program during the third quarter of 2026. On August 7, 2026, our Board of Directors authorized an additional $15 million of buyback capacity.

We have approximately $16.0 million of remaining authorization under our buyback program. Our earnings release list 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 2026 guidance includes tariffs currently in effect as of November 4, 2026, but excludes any future tariff refunds that may be received from indirectly sourced products. We are closely monitoring the tariff developments to manage our exposure and minimize the impact on our business.

As a reminder, the following guidance is for calendar year 2026. When we release our Q4 earnings, we will provide 2027 guidelines. We expect our gross margins for 2026 to be between 61.3% and 61.5%, which is an increase in our previous guidance due to the receipt of tariff refunds.

We anticipate gross profit margins will be impacted by our current estimates of product, freight and LIFO expenses. Our fixed and discretionary type SG&A expenses for 2026 are expected to remain in the $307 million to $309 million range. The variable type costs within SG&A for 2026 are expected to be in the range of 19.2% to 19.4%, which is an increase from our prior guidance due to higher delivery and transportation costs associated with higher fuel prices and increased third-party credit costs.

Our planned CapEx for 2026 remains at $34 million. Anticipated new or replacement stores, remodels and expansions account for $27.7 million. Investments in our distribution network are expected to be $3.2 million and investments in our information technology are expected to be approximately $3.1 million. Our anticipated effective tax rate for 2026 remains at 26%.

This projection excludes the impact of vesting of stock awards and any potential new tax legislation. This completes my financial commentary on the third quarter results. Operator, we would like to open the call for questions at this time.

Operator

[Operator Instructions] Our first question is from Anthony Lebiedzinski from Sidoti & Co.

Question-and-Answer Session

Anthony Lebiedzinski

Certainly nice to see another quarter of sales and earnings growth here in 3Q. So I know you touched on a little bit as far as trends during the quarter. Were there any notable regional differences that you saw as you progressed from July through September? I'm just curious about that.

Steven Burdette

Not anything is notable, Anthony, that we've seen. I mean it's pretty much across the board, we're seeing the effect. Some are more so than the others, but nothing notable.

Anthony Lebiedzinski

Got you. And then in terms of the average ticket going up, how much of that you think was due to pricing versus unit volumes or mix? And do you think these average ticket increases are sustainable?

Steven Burdette

I'm still going to say it's probably still driven by price. We did see our units stay fairly flat per ticket overall, but we saw a little decrease in our designer deals on the unit numbers there. So I'm still going to say it's driven by price majority on that.

We do think there's opportunity to continue to maintain that and grow that with our design business as we want to try to grow that from being in that 17% range or so of customers that are participating and driving that upwards to the 25% or so that we think that will certainly will drive more of the average ticket will be a big contributor to that success.

Anthony Lebiedzinski

Got you. And then, Steve, you also mentioned in your remarks about just all the disruptions with the midterm elections, advertising and marketing spending. Can you perhaps give us some little bit more details as far as how disruptive you think this might have been? I mean October is typically not a seasonally strong month for furniture buying. But I mean, if you could just maybe kind of give us some color whether this was similar to the last election 2 years ago? Was it -- anything else you can add to that, that would be very helpful.

Steven Burdette

Yes. I'm not going to talk about October. So we're talking about Q3 on side of this. What we know so far, and it's still early, you know the political ads take precedence on any TV, and so you can get bumped with what you have. We have -- we saw that in the July 4 a little bit. We haven't gotten all the information for Labor Day yet on what happened there, but we suspect it was even more so or more prevalent during that time period as well.

But we will know that shortly in the next probably 30 to 45 days.

So as far as comparing it to 2024, I think this was very contentious. It was the biggest spend of any midterm ever. I think I heard a number of $12 billion was spent in advertising. I could be wrong, I heard that. So it definitely created -- I think there was a lot, as I talked about, a lot of anxiety, not just in the 5 states that make up 2/3 of our stores, but across the whole footprint. I mean there was anxiety.

You couldn't turn on an ad that you were hearing something -- and that doesn't matter what side of the aisle you're on. There was just a lot of anxiety of what was going to happen. But as I said in my comments, it's over. And there is no questions, and we don't have to worry about it. It's not lingering. We're going to move forward, and I think our customers will as well.

Operator

Our next question is from Cristina Fernández with Telsey Advisory Group.

Cristina Fernandez

I wanted to follow up on this -- the last topic. You mentioned the midterms had an impact on your marketing expense and that it was down year-over-year. With the midterms behind now, do you plan to increase marketing expense in the fourth quarter? Or how are you thinking about using that as a lever to drive sales going forward?

Steven Burdette

Yes, Cristina, we've been pretty consistent with it all year. What we don't know is what didn't run. And that's the part I don't know in September. We get that after the fact and get credits back on that. So I'm covering with you what our expense was and what was planned.

What we are suspecting and what we've seen from July 4, that was more prevalent probably in Labor Day as the ads started ramping up that we were getting pushed out. So that's really kind of us thinking through it. I don't know it yet, but we're expecting that and all indications lead to that. So I can't quantify it.

Going forward, we're going to continue to push and promote. Obviously, we were -- as we look forward, we know the elections were only ramping up in October. That's behind us now. We've got Veterans Day and after Thanksgiving, we got moving into New Year's and after Christmas sales. So we will be back active and very aggressive to push through the remainder of Q4 and then head into 2027.

Cristina Fernandez

And on your prepared remarks, you cited a number of inflationary pressures. As you look ahead, are there any levers you can pull to offset these costs? Like, for example, do you plan to make changes in pricing, perhaps your delivery fees or change your financing offers? How are you looking at offsetting some of these costs to the extent you can?

Steven Burdette

Yes. I mentioned on the credit costs, we're looking to try to offset those by in the off promotional periods and looking at increasing the average ticket and where they can be used. And hopefully, that can lower that. LIFO costs are hitting us, and that's real. That's about material increases that are coming.

From those, we are making selective pricing changes, retail pricing changes, in order for us to maintain our margins and where we're going. And that would apply to also the bunker fuel. I hope the bunker fuel and diesel fuel increases will subside, but we've got to get this war behind us, I believe, before we're ever going to see that. And so that's kind of an unknown as to how long that's going to last at this point.

We are not entertaining right now any increases in delivery fees at this point to our customers as we move forward. So health insurance costs, I mean, those are coming at us and it will continue. Hopefully, we get a better performance going into next year, but that's just about the health of our team members and how well we're taking care of ourselves as we go forward.

Obviously, we're trying to promote that internally and make sure everybody is as healthy as they can be. So -- there's not a lot, as I told you, it's more difficult to leverage this, Cristina, on these costs as we go forward. We've got to produce volume to create the leverage on some of these ones that we're dealing with.

Cristina Fernandez

Yes. No, understood. And then lastly, just kind of big picture on your specific consumer. Up until recently, this consumer more affluent was in good health financially. Do you still feel like that's the case and the behavior you saw in the third quarter was a bit more temporary? Or how do you think this consumer is financially and their propensity to spend as you look at the next, let's say, 6 to 12 months?

Richard Hare

Cristina, just a couple of things on that. From what we're seeing from Synchrony who has the credit statistics on our consumers, about 1/3 of which use Synchrony to finance their product. We continue to see very strong approval rates, above 750 credit scores, almost 90% approval in stores.

So our consumer is holding up well. I just -- my personal opinion is there's some angst about the elections. That's behind us. The market is up today, which tells me the market thinks it's a good thing that all of it is behind us, and we're looking forward to the future.

I also want to just point out one other thing on G&A costs. About $2 million of the G&A cost increase related to accelerated vesting of stock awards, and that's just because certain individuals reach a certain age within the company. So that's more of a one-off. So all the increase is not permanent. At least $2 million of that is temporary and should not repeat itself in the near term.

Operator

We have reached the end of the question-and-answer session. I would like to turn the floor back over to Tiffany Hinkle for closing comments.

Tiffany Hinkle

Thank you for your participation in today's call. We look forward to talking to you in the future when we release our fourth quarter results. Have a great day, everyone.

Operator

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