Good day, and welcome to the HVT Fourth Quarter and Year-end 2021 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Richard Hare, Chief Financial Officer. Please go ahead.

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

Good morning. Thank you for joining our 2021 fourth quarter and full year conference call. We're very pleased to report a record fourth quarter and full year performance. For the first time in our history, we reached $1 billion in net sales and had record earnings per share of $4.90 versus our previous record earnings last year of $3.12. We're well positioned in the fastest-growing markets in the country. Housing in our regions continues to be a tailwind for growth. With our best-in-class balance sheet, we're continuing to invest in all parts of our company as well as the important and evolving e-commerce business. We're particularly proud of all our teams who operated in challenging circumstances related to COVID-19 concerns, unrelieving supply chain disturbances and ongoing price increases in our product and in shipping cost. We believe that we outperformed many of our competitors by working closer with our suppliers to bring in products and providing better service levels. We believe that because we manage the entire distribution process from shipping containers to the final mile home delivery, we offer a faster and more reliable service level. Our store positioning in the 16-state footprint is focused on adding stores in the hottest real estate markets in the United States. We have the most stores in Florida, Texas, Georgia, North Carolina and Virginia. This year, we plan to open stores in Northern Virginia Gateway, Austin Pflugerville and a relocation in Indianapolis and a branch store in an existing market. We're positioned in 9 out of the top 10 hottest housing markets recently noted by Zillow. We plan to open 4 and net 2 stores this year. We'll have 10 LED lighting conversions, completing our multiyear effort to upgrade all of our stores. We have 6 major remodeling projects planned for the…

Thank you, Clarence. I want to offer my congratulations as well to the entire Haverty team for the outstanding fourth quarter results as well as the record 2021 yearly results. Achieving $1 billion took a great deal of commitment, hard work, passion and patience from each of our team members as they had so many headwinds to overcome during the year. Again, my sincere thanks to each of them. As expected, our supply chain network was impacted during the latter part of Q4 2021 and the early part of Q1 2022 due to the Vietnam shutdowns in August and September last year, along with the slow ramp-up times as they reopened beginning in October 2021. Also, most of our domestic suppliers closed for 2 weeks in the Christmas and New Year's time frame to give their associates needed time off and to do maintenance on their equipment. These 2 issues caused a reduction in our receiving of approximately 10% in December and January. However, we are seeing our imports and domestic shipments increasing and expect that our receiving levels will return to normalized levels in the February, March time frame as our vendors are getting back to normal operations. Our undelivered pool continues to remain healthy, but our average age has increased to just over 10 weeks in the last 90 days. We are seeing to stabilize and expect a reduction in the average age of the undelivered pool by the end of Q1. We have seen an improvement in our vendors lead times with special orders. With these improvements, we are expecting a return in our Special Order business to our targeted 25% of upholstered sales by midyear. Container rates and container capacity continue to remain a concern. While it appears that there has been some settling in the…

Thanks, Steve, and good morning. In the fourth quarter of 2021, net sales were $265.9 million, a 10.2% increase over the prior year quarter. Comparable store sales were up 9.2% over the prior year period. Our gross profit margin decreased 60 basis points from 57% to 56.4% due to an increase in our LIFO reserve as we continue to see increased freight and product costs. Selling, general and administrative expenses increased $10.9 million or 10.2% to $180 million, primarily due to increased sales, as a percentage of sales, these costs were basically flat. We did experience increased port congestion, and we incurred significant demurrage costs of approximately $1.8 million, which negatively impacted our selling, general and administrative costs. Other income in the fourth quarter of 2021 was negligible. And in the fourth quarter of 2020, we recognized a $600,000 gain on surplus property. Income before income taxes increased $800,000 to $32.1 million. Our tax expense was $7.8 million during the fourth quarter of 2021, which resulted in an effective tax rate of 24.3%. The prior year's fourth quarter tax rate of 18.7% was impacted by the recognition of certain state job creation tax credits. The primary difference in the effective rate and the statutory rate is due to the state income taxes and tax benefits from vested stock awards. Net income for the fourth quarter of 2021 was $24.3 million or $1.35 per diluted share on our common stock compared to net income of $25.4 million or $1.37 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the quarter, our inventories were $112 million, which were up $22.1 million from December 31, 2020, and down $6.9 million versus the Q3 2021 balance. At the end of the fourth quarter, our customer…

And our first question will come from Anthony Lebiedzinski with Sidoti & Company.

So first, versus pre-pandemic levels, so what is your view of the sustainability of demand? And also, are you seeing any notable order cancellations?

Well, I'll start with that. We haven't seen any notable cancellations. Our backlog is very healthy. It's up over last year. Anthony, pre-COVID, we announced that we wouldn't be releasing sales trends mid-quarter. But with COVID-19, we have to issue a lot of different information and we gave both written and delivered often the last several quarters. In addition, this particular quarter, we are significantly affected by the calendar the most important event is upcoming Presence Weekend. And it's next weekend. And last year, it was last weekend. So the calendar is not comparable. So we also don't like giving weather reports. I'm not going to do that. But we're only going to be releasing our current business conditions when we release earnings, and that will be obviously a couple of months. So we'll talk all you want about what happened.

Well, I was just more curious about your longer-term view and not necessarily what you're seeing quarter-to-date, but -- A –Clarence Smith: You heard that in our presentation, we feel very good about our position. We feel very good about the year. There are lot of unknowns. We feel like we’re in a very strong position, and we’ve got a really strong backlog, which we expect to be able to have carries for the next couple of quarters. Q –Anthony Lebiedzinski: Of course. Now did you guys quantify the backlog? Or is that something that will come out in the 10-K? A –Clarence Smith: We did not quantify it. It’s up over last year. Q –Anthony Lebiedzinski: Okay. Fair enough. Okay. All right. And then Clarence, you talked about accelerating the store growth looking to open 5 new stores per year. I assume that’s mostly going to be within your current geographic footprint. Is that a fair assumption? A –Clarence Smith: It’s within our distribution footprint. It could go into other states, but it is within where we can serve out of the distribution that we currently have in place. And you heard that we’re expanding the capabilities for a couple of our facilities, which will help us grow also. Q –Anthony Lebiedzinski: Got it. Okay. And then for this year, as far as the store openings and closings, what’s the ballpark estimate as to when you expect to open and close those – so I think it gets – talk about 4 openings and 2 closings. A –Clarence Smith: They’re going to be later in the year, Richard, do you want to -- A –Richard Hare: Yes. Probably 1 opening will be earlier this year. The rest will be the latter part of the year and the closure will be third or fourth quarter of this year.

And our next question will come from Andrew Efimoff with KeyBanc Capital Markets.

I'd like to add my congratulations on your $1 billion sales milestone you all achieved last year. So my first question is more on the written cadence during the quarter. I was wondering if you could provide any more color on how demand trended throughout the quarter. I know that from an industry perspective, we've obviously heard broader concerns about Omicron and whether -- and lapping stimulus payments, which have been especially impactful in January. But I'm curious to hear how you've seen demand evolve in the past couple of months in your business.

Well, let me hit the written part for Q4 and then Clarence or Steve talked about the business in general. But the written trends were -- they were a little soft in October, November, and it was a positive written trend in December.

Yes. I think that December was a little bit of a challenge compared to the previous year because we had such a record. And also part of our issue is that in a couple of categories, particularly cascades were so low in our inventory that that's been a drag. We expect that to clear up starting now. We've got a lot of product on the water, a lot coming in, but it was more of a challenge late in the year because of inventory on some of our best sellers.

Got it. Understood. And then I know that promotions ran relatively lean during the height of the pandemic last year and in 2020. But could you talk about how promotions are tracking more recently in your own business as well as what you've observed in the competitive environment and how you expect that environment to change in 2022?

Yes, Andrew, this is Steve. I would tell you that we have not really changed our cadence. We have looked at credit and seeing what needs to be done there to be competitive. We still see that being aggressively used. And so we may be a little more aggressive with that, if needed, but our overall promotion schedule and calendar will not change with what we do. Our marketing efforts will continue to focus on more digital efforts to attract the consumer and bring them in, but obviously still using broadcast and those medians as well.

Got it. That's helpful. And your gross margin guidance for the year was encouraging as it reflects similar to improved margins versus the strength you saw last year. Could you provide more detail on your expectations for freight and product costs for the year and how they play into that gross margin outlook you're forecasting?

Well, this is Steve again, Andrew. We basically, as we said in the deal, we have seen some leveling out on the container rates. Certainly, the premium rates have gone down some, but they still exist. They're still high. And we're still bringing product on a needed basis that we need to get it for our consumers, and we are still paying some premium rates. But we have all this factored into our pricing. That's been in there, and we do not see any impact in that leading in through 2022, and that's why we put the margin guidance out there of 56.7% to 57%.

And that does conclude the question-and-answer session. Mr. Hare. I will now turn the call back over to you for any additional or closing remarks.

Great. Thank you for your participation in today's call. We certainly look forward to talking to you in the future when we release our first quarter results.

Thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.