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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [3]
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Well, we're doing a lot more special order and custom now with our H Design team, Budd, and those are at higher price points. And our best-selling upholstery groups, which are our top numbers, are at a higher price point than we've ever had before. So dealing with a designer who gets now the whole room, puts together the whole home as opposed to just an item or a sofa, adds to the ticket. And then on top of that, we're doing more custom, more special order and higher pricing. So we did have -- at Labor Day, we had a 60-month financing program for a short period of time, which also helped drive our average ticket during that promotion. And that was a new move we haven't done before that we did over Labor Day.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [4]
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So is the average ticket now around $2,200 or $2,300?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [5]
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Yes, it is.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [6]
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Okay. Interesting. I look for whether you had disclosed what percentage of your cost of goods sold are coming from China, and I don't know that I was able to see that. Maybe you have discussed that in other calls, I don't recall it. Can you give us maybe a feel of what percentage comes from China?
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [7]
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Sure. Budd, if you look back, what we've disclosed is if you look at our 2017 annual numbers, $100 million of our cost to sales came from China, of which $12 million of that $100 million were direct imports, the remaining were indirect, so they went through a third party. So that's kind of the quantification of our exposure.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [8]
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Okay. And what do you think you can do and what are you -- what have you done for the 10% to offset the impact of that? Is it just a timing issue for the fourth quarter? Or is there something you have done to mitigate that effect if we look to just 10% going into the first quarter of next year?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [9]
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It's both. We were trying to prepare in bringing product in, in recognition that the tariff could happen, which is a part of it, but we've also negotiated with all of our vendors to minimize the impact. They're taking part of the hit, we're taking part of the hit. But most of all, the product we have in stock and already coming is without a tariff or minimal part. So it's just been a process of working with our vendors to minimize the impact at a retail level.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [10]
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Okay. And so of the $100 million that now is at risk, what do you think you can move if you had to? Or how much of it's upholstery format and a little of it's bedroom...
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [11]
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Well, most of our bedroom, we've already moved to Vietnam, and we will be moving more of that. As you well know, all of China is trying to move the product, or most of China is, to Vietnam, and they can't handle that all at one time. But most of our case goods have already been moved there. We do have some exposure on some groups that are made in China. And again, upholstery, particularly leather upholstery, has been mostly made in China and that is being moved by a number of factories, as you know. And we're one of the major players, so we hope that we can get that production without any disruption. But we know there will be some if the 25% tariff hits, and everybody is trying to move at one time. So we're trying to mitigate it through negotiating with our factories and trying to move to different suppliers and different factories in other parts of Asia, primarily Vietnam.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [12]
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So if I had to guess or if you had to guess, next year, that $100 million number from China would be what? What do you think it would be?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [13]
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Well, we haven't given that number out. We're still trying to quantify that. But I know everybody needs to know that number, we do too. So it's something we're continuing to work on. I don't think we have a number for that.
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Operator [14]
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Our next question will come from Anthony Lebiedzinski with Sidoti.
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Anthony Chester Lebiedzinski, Sidoti & Company, LLC - Senior Equity Research Analyst [15]
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So I guess, first, a couple of Q3-related questions. So as you've closed some stores and optimized your store network, is there a number that you can give perhaps for the impact of reverse cannibalization on your same-store sales performance?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [16]
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I don't think -- we haven't given a number on that. Several of these stores we closed are in existing markets. We are picking up some of those sales in the stores that are in that market. It has helped comps a slight number. I don't think we've given that number out, Richard, yes. We feel good about these closings. I mean, these were stores that were underproducing. We knew that at the end of the leases, we did not want to renew them. So we've really worked through most all of our portfolio. We don't have any planned closings after this year. And the stores that are closing were actually smaller number, most of them were all underproducing at levels that were not significant as far as sales per square foot. So we're glad to get out of them. We've relocated the people who wanted to stay with us to existing markets. And now we're looking at more infill markets that are available at good leases. So we don't see us reducing the count from 120.
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Anthony Chester Lebiedzinski, Sidoti & Company, LLC - Senior Equity Research Analyst [17]
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Got it. Okay, that's good to hear. Okay. And then as far as for the quarter, is it perhaps possible for you guys to quantify the impact of higher wage and fuel costs?
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [18]
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Well, in the G&A category, we talked a little bit about that. If you look at -- we're up about $1.1 million in G&A, about $600,000 of that was increased compensation cost on the administrative side, offset by reduced medical. We had about an increase of $700,000 in warehouse and delivery. And that's where you're going to see the higher wages and the fuel cost. And then that was offset by reductions in occupancies. So it's kind of buried in that $700,000 number.
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Anthony Chester Lebiedzinski, Sidoti & Company, LLC - Senior Equity Research Analyst [19]
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Got it. Okay, that's very helpful. So I know you guys are still evaluating potential retail price increases, assuming the 25% tariff goes through starting in January. So when you look at the different product categories that you have, which ones do you think you have the most pricing power in and which ones do you think have the least pricing power?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [20]
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Well, it's an interesting point. I would say that with our specific product mix that we make in case goods, we probably have a little more pricing power in case goods because it's not out there at all, and those designs are exclusive to us. But most of the case goods are already in Vietnam. So where the big risk and where most of the product sits of that $100 million is in leather upholstery coming from China. So it's a more competitive area. It's harder to distinguish your looks. We do that, but I would say you have less pricing power there than you would in case goods. But the risk is less with case goods because most of that's already moved.
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Operator [21]
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(Operator Instructions) We'll take our next question from Brad Thomas with KeyBanc.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [22]
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A few housekeeping items, if I could. Richard, I apologize if I missed it, but could you give us the fixed discretionary expense for 3Q or year-to-date?
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [23]
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Sure. The fixed for Q3 is $65.4 million, and year-to-date, it's $191.1 million.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [24]
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Perfect.
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [25]
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You got it.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [26]
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And then just with respect to stores, how are you thinking about the store base next year? I know, Clarence, you said you didn't feel like you should go below 120. Will we start to see some more growth next year?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [27]
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That's the plan. We are working on some locations, new leases and then filling markets. We haven't finalized those. And we do think there's some opportunities for growth where we can serve the customer quite well and where we're known in a number of these markets. So yes, we're looking at some locations, and we expect to grow this year -- or in '19.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [28]
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Great. And then a question on advertising. Every couple of years with the elections, sometimes that could be a bit distracting. I guess, any commentary about the effectiveness of advertising, cost of advertising that you've been seeing over the last month or so?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [29]
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Yes. Well, yes, so right at the time we're talking. We have -- as we did with the national election, we backed off of some of our television around election time, which is right now. As you well know, it's pretty intense, and it does get more expensive, and you get bumped. We've moved some of that mix more to the digital arena, but we have had to -- or we took the strategy of backing off, let's say, for the next several weeks until after the election. So it does have an impact, and this particular midterm is more significant than usual. So we're recognizing that and backing off at the time.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [30]
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Got you. Great. And then just as we think about gross margin for next year, you all have done a really admirable job of improving gross margin in the last 3 years. Do you think that we can continue to expand gross margin next year? Or you think we're better off expecting it to be down somewhat with the tariffs?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [31]
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Yes, we're not modeling that because of the tariffs. That's such a significant factor. We are having to take price increases and anticipating that. We're placing orders now, clearly, and have orders placed now for next year. And you have to assume the 25%. So no, I don't anticipate, and the model that Richard talked about shows, I think, 54.5%, which I would be happy if we can hold that if the tariffs hit. If the tariffs don't hit, we do have some pricing power.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [32]
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You're saying you'll be happy if you can stay at 54.5% next year with the tariffs?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [33]
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Correct.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [34]
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Okay. And if we get to 25% tariff, is there -- can you quantify what you think the price increase would be to the consumer on average across the store?
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [35]
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Not yet. We're doing kind of a bottoms-up review right now with our merchandising group going through all of our products, each and every product that we get from China and the impact on our cost and on the pricing as well for our customers. So that's to be determined, but we're right in the middle of that process.
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [36]
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And the real unknown is the salability once you raise these prices. I mean, we don't know that. And we do know certain areas are very competitive and price increases will be tough. It's just too much unknown, but we will -- we have a process, as Richard said, of getting a lot more detail on that.
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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [37]
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Great. If I can squeeze one more in, just on the mattress category, I know a smaller business for you, closer to 10% of sales. But with this backdrop where mattress firm is closing some stores, is in bankruptcy, Tempur-Pedic obviously has some new products out, the stock of the -- the antidumping ruling against the Chinese coming here soon. I guess, I'd be curious if there's any color you could share about how that business is performing and your enthusiasm going forward.
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [38]
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Well, it's an important category. Yes, it's around 10%. We've had it before 11% or plus, and we want to get back. We are planning to be aggressive in the category. We are a major customer of both major vendors of Serta and of Tempur, and we intend to be. We're also developing our own product, which is made domestically, if this antidumping issue will impact a line that we bring out of China. But we think that it'll be an important opportunity for us to grow our share as we have fewer of those stores in the markets. And we want to grow it within our own stores. We're not planning on opening any of our own sleep stores, but we want to be aggressive, and I think you'll see more of that in the next several quarters.
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Operator [39]
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Our next question will come from Budd Bugatch with Raymond James.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [40]
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Yes, Clarence, you did mention you will be placing orders in advance of, I guess, the incremental 15% tariff. So can you give us a -- quantify what you think inventory might look at, at the end of the year? Where do you think you -- how much are you willing to commit to prebuy?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [41]
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Well, what we've already committed is already coming here or on the water, but...
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [42]
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Yes, I think we were at around $108 million. I don't think it's going to go higher than that. I think it's going to be right around that area. Most of it, as Clarence said, is in route, but I think you'll see next year -- it may come up a little bit, but then you'll see it go back down as we -- we're bringing in inventory now when we can get it when the tariff is lower. And in some cases, we've got it before the 10% tariff was in effect. So it might go up slightly more than where it's at now, but then it should come down Q1 of next year and so forth.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [43]
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So you ended the quarter at $108.3 million, and you think it will be that or maybe a tad bit higher at the end of the year?
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [44]
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It could go slightly from there, but I don't think you're going to see a drastic increase.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [45]
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Okay. So $110 million would be kind of the high watermark.
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [46]
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Yes, I mean, we built to this on purpose because we were worried about tariffs. So yes, as Richard said, we expect that to come down in later quarters -- later months.
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Beryl Bugatch, Raymond James & Associates, Inc., Research Division - MD and Director of Furnishings Research [47]
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And just lastly, the leather upholstery that's coming from China, is that at the promotional leather upholstery side or the better goods typically?
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Clarence H. Smith, Haverty Furniture Companies, Inc. - Chairman, President & CEO [48]
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Well, all categories. I mean, our best leather comes -- I mean, we're doing it domestically, but it's still coming from China, much of it. So most of what we're referring to when we talk about leather from China is the motion leather category, which you know is major. And so that's what's hitting us the most.
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Operator [49]
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It looks like there are no questions at this time. (Operator Instructions) Okay, it looks like this concludes the Q&A session. I'll turn the conference back over to Richard Hare.
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Richard B. Hare, Haverty Furniture Companies, Inc. - Executive VP & CFO [50]
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Thank you for your participation in today's call. We look forward to talking with you in the future when we release our fourth quarter results.
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Operator [51]
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Ladies and gentlemen, thank you for joining today's Haverty's Third Quarter Financial Results Call. The call has now concluded. Please disconnect your phones, and have a great day.