Hello, welcome to today's conference call, Havertys Reports Operating Results for Q4 2022. If anyone should require operator assistance, please press star zero on your telephone keypad. A Q&A session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to CFO, Richard Hare. Please go ahead, sir.
Thank you, operator. During this conference call, we'll make forward-looking statements which are subject to risk and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as the date they are made at 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 our President, Steve Burdette, will provide additional commentary about our business.
Good morning. Thank you for joining our 2022 Q4 and full year conference call. We're very pleased to report a record Q4 and full year performance. Havertys has produced the highest sales quarters in our history over the past nine quarters, going back to the Q4 of 2020. For two consecutive years, we have reached $1.1 billion in net sales with record earnings per share. The net sales in 2022 of $1.05 billion was 3.4% higher than the record sales achieved in 2021. The earnings per share of $5.24 was up 6.9% over the prior year record.
As we anniversary our business against the outsized demand generated during the pandemic, our written business for the quarter was down 6.2% compared to the Q4 of 2021, up compared to 2019. Our store traffic has also tracked lower. We continue to close more visits, and we've increased our average ticket 25% over the Q4 in 2019. The importance of successful customer engagement has never been more critical. Our H Design program is a competitive advantage, driving our average ticket increase and an important differentiator from our competition. When an H Design professional is involved in a sale, the average ticket increases over 90%. 2022 saw a return to more historically normal sales patterns with holidays and weekends driving volume. To fuel our historic sales, we brought in more goods than ever before.
In addition to record sales, we were able to replenish the inventory in our warehouses. We are better positioned now than any time in the past 3 years to fulfill a customer's order. Our pricing discipline and management of the entire distribution process from shipping containers to the final mile of home delivery has allowed us to achieve record margins for the year. We continue to improve our already strong store positions in our markets. Our growth strategy in the distribution footprint is focused on adding stores in the hottest real estate markets in the United States. In the Q4, we relocated our Indianapolis store and opened a new store in Gainesville, Virginia, a high-growth market outside of Washington, D.C. Last week, we opened our new store in Durham, North Carolina, in a former H.H. Gregg in that dynamic market.
We have plans to open three more stores this year, one in a new market and two to enhance coverage in existing markets. Our capital expenditures in 2022 were $28.4 million. We plan on spending just under that in the coming year. Our strong balance sheet provides flexibility, and we will continue to search for growth opportunities. Our goal of five stores a year for the next three years remains. Capital investments will continue to focus on stores, distribution, and IT enhancements. These investments are focused on driving growth in our existing footprint. Our merchandising teams are excited to be finally developing and bringing in new designs, which we put on the back burner during the supply chain and factory delays over the past year. We have significant new arrivals beginning in the next few months in upholstery, bedroom, dining, and mattresses.
These collections will see a benefit from lower freight rates. We're very pleased with our record performance. We're facing challenges with lower traffic and written orders when compared to 2021 and 2022. Inflation and slowing housing sales are impacting our business in many of our markets. Our team is committed to serving our customers with fashion, value, design, customization, and excellent service. Over our history, we've consistently gained market share in challenging times. We strongly believe that we will earn a larger share of the market by helping our customers' vision of their home come true in the months ahead. I'll turn the call over now to Steve Burdette, President.
Thank you, Clarence, and good morning. We're excited about the record results in the Q4 and for the year. We are very appreciative to all our team members for their hard work and dedication to furnishing happiness to our customers. Our written business in Q4 was down 6.2%, Our average ticket was up over 9% and our closing percentage was up approximately 2%. Our foot traffic in Q4 remains down at a consistent pace with previous quarters. Our supply chain network is back to operating at pre-pandemic levels. Our lead times, shipping times, container costs and port rail delays are back operating within normal tolerances. Our inventories were 5.6% over Q4 last year, have decreased 13.8% from Q3.
Our backlog continues to decrease with our average age for the backlog dropping below 10 weeks, setting our expectations that our backlog will be back to pre-pandemic levels sometime mid-year unless we see a bounce in written business. Our special order business continues to show improvement in Q4, moving to 23.1% of our total upholstery sales. The lead times from our vendors are consistent with our expectations, allowing our sales and design teams to provide our customers with options as they shop without any hesitation on delayed arrival times. In fact, we are experimenting with offering more special order options from our upholstery import vendors due to their production improvements. Obviously, the lead times will be longer than a domestic vendor, but we feel offering the customer more choices creates more opportunities for her to purchase.
Our expectations are that we will be well above our special order goal of 25% of upholstered sales in Q1 2023. We are continuing to be encouraged by our design program's written business as it grew by approximately 8% in the quarter. We have learned from our research that our design services gives our customers a feeling of support throughout their journey. However, one of our biggest barriers to overcome is creating more awareness of the design services. The new website and our new in-store point of purchase program will increase our awareness of our design services. We continue to focus on our execution, training and retention within our distribution centers, home delivery and customer service. We are continuing to monitor our staffing to make sure that it is aligned with our current business expectations.
Normal attrition will allow us to reach these levels without incurring any additional cost. We remain cautiously optimistic moving into 2023 because of our store locations throughout the South where more customers are moving, because of our new website will give us more information about our customers' shopping behaviors, increasing the awareness of our design services, the increased introduction of new products to our floors, creating excitement for our teams and customers. Finally, the plan to open five new stores to further leverage our current distribution network. I will turn the call over to Richard.
Thanks, Steve. In the Q4 of 2022, net sales were $280.6 million, a 5.5% increase over the prior year quarter. Comparable store sales were up 5.8% over the prior year. Our gross profit margins increased 60 basis points to 57% from 56.4% due to better pricing discipline and merchandising mix. SG&A expenses increased $10.5 billion or 8.9% to $128.5 billion. As a percentage of sales, these costs approximated 45.8%, up from 44.4% in the prior year quarter. As expected, we saw increased selling, distribution and transportation expenses during the quarter.
Other income and expense in the Q4 of 2022 was negligible, our interest income increased $920,000 during the Q4 as interest earned on our cash deposits increased this past year as interest rates have increased. Income before income taxes increased $400,000 to $32.5 million. Our tax expense was $8.8 million during the Q4 of 2022, which resulted in an effective tax rate of 26.9%. For the 2022 year, our effective tax rate was 25.2%. Net income for the Q4 of 2022 was $23.7 million or $1.42 per diluted share on our common stock, compared to net income of $24.3 million or $1.35 per share in the comparable quarter last year.
Looking at our balance sheet. At the end of the Q4, our inventories were $118.3 million, which was up $6.3 million over the year-end balance of 2021 and down $19 million versus the Q3 2022 balance. At the end of the Q4, our customer deposits were $48 million, which was down $50.9 million or 51% from the December 31st, 2021 balance, and down $31.8 million or 40% versus the Q3 2022 balance. We ended the quarter with $123.1 million of cash and cash equivalents. Again, we have no funded debt on our balance sheet at the end of Q4 of 2022.
During the Q4 of 2022, we amended our revolving credit facility and increased the revolving loan commitments from $60 million to $80 million, extended the term of the commitment to October of 2027 and replaced the LIBOR rate with a SOFR rate as the interest rate benchmark. Looking at some of our use of the cash flow, CapEx was $28.4 million for the year. During the year, we also paid $17.8 million of regular dividends and $16.1 million in the form of special dividends in Q4 of 2022. During the Q4, we didn't purchase any common shares under our existing stock buyback program. During the year, we did purchase $30 million of common shares, equating to 1,087,378 shares.
At the end of the Q4 of 2022, we have approximately $20 million of existing authorization in our buyback program. As you'll note, during the 2022 year, the company has returned approximately $64 million to shareholders in the form of share repurchases, regular dividends, and special dividends. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'd like to highlight a few, but please refer to our press release for additional commentary. We expect our gross profit margins for 2023 to be between 58% and 58.5%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserve.
Our fixed and discretionary type SG&A expenses for 2023 are expected to be in the $292 million to $295 million range. The variable type costs within SG&A for 2023 are expected to be in the range of 19.5% to 19.7%, with the increases over 2022 primarily being inflation-driven and increased third-party financing costs. Our planned CapEx for 2023 is $28 million. Anticipated new or replacement stores, remodels, and expansions account for $19.3 million. Investments in our distribution network are expected to be $5.8 million, and investments in our information technology are expected to be approximately $2.9 million.
This estimate continues to reflect a deferral of the conversion of our home delivery center in Virginia to a regional distribution facility due to the availability and pricing of certain building materials. Our anticipated effective tax rate in 2023 is expected to be 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the Q4 financial results. Operator, we would like to open the call up for questions at this time.
Certainly. We'll now be conducting a Q&A session. If you'd like to be placed into question queue, please press star one at this time. One moment, please, while we poll for questions. Our first question is coming from Anthony Lebiedzinski from Sidoti. Your line is now live.
Good morning, gentlemen, and thank you for taking the questions. First, just on the Q4 delivered sales, can you give us a rough estimation as far as the breakdown from, you know, upholstery versus case goods, mattresses, kind of, just in terms of the delivered sales growth?
Yeah, Anthony, Let me give it to you for the year. I have that in front of me.
Okay.
For terms of sales, the case goods was about 35 .5 % of the total sales for the year.
Mm-hmm.
Upholstery was 42.5%. Mattresses were 8.1%, and accessories and other was 13.8%. It looks, in general terms annually, it looks like the case goods category is holding about the same as slightly up from last year. Towards the back half of 2022, we did get caught up quite a bit on that. Earlier in the year, we had more upholstery, but we've gotten caught up on that, and you kinda see more along the lines of what you typically see in terms of the segment breakout.
Got it. I think mattress sales are down, right?
Mattress sales are slightly down. They were 8.9% of sales in 2021, and in 2022, they're 8.1%.
Okay. Got it. Thanks for that, Richard. In terms of the written business, like, was there any notable variation month to month? Also, do you have a Q4 written, same-store sales compared to 2019?
The same-store sales for written would be approximately the same as what we released, the 6.2% on the written side. In terms of the cadence during the months, our written business was down in October, high single digits and then low single digits in November and December.
I think we're still ahead of 19 significantly.
Yes.
Yeah.
Double digits.
Right.
Low double digits.
You're up low double digits versus Q4 2019. That's good to hear. Gotcha. Then, just lastly, as far as, you know, the store opening plans, it looks like you haven't shared the locations of those. Just as far as timing of when those stores will, I believe one store, I think you said opened last week in Durham. In terms of the rest of the store openings kind of by quarter, and when do you expect to close one of the stores?
They're gonna be towards the latter part of the year. There may be a few actually in the Q4. I mean, these are stores that we're finalizing. Some of them we're finalizing leases, some of them we're in the process of working on that. I would say they're back-end weighted significantly this year. I mean, I will tell you, Anthony, we are seeing some really good opportunities that we're encouraged by. That, though, will probably go into next year. We still have a target of five or five this year and five next year. We are encouraged by some of the opportunities.
Got it. All right, well, thank you. I'll pass it on, and the best of luck going forward.
Thank you.
Thank you. Next question is coming from Cristina Fernandez from Telsey Advisory Group. Your line is now live.
Good morning, and congratulations on a good quarter. I had a couple of questions. The first one, I think Steve alluded to this in his remarks. With the customer deposit balance you have now on the backlog, I mean, how much longer can reported sales outpace written order trends?
Let me start it off, Cristina. Yeah, our as you know, our back, our customer deposit trends and our backlog trends are very similar. They correlate with one another. We did have a significant drop in the backlog with these deliveries in the Q4. you know, as I mentioned earlier, it went down 40% in one quarter, 50% for the year. I believe Steve mentioned in his commentary that we expect to get back to these levels, the, you know, the historical levels, sometime mid-year.
You know, a lot's gonna depend on the current written business, Cristina, how that, you know, performs in 2023.
Yeah, that makes sense. It seems like based on what you're seeing today by, you know, second, Q3, that, you know, reported sales and written order sales would be more in line. Is that a fair assumption?
Are you referring to this, the 2023 or 2022?
2023.
Okay. Well, we really can't forecast much about 2023 other than we can say what we expect. We still expect that our backlog will be back to more historical levels. It really is gonna depend on what the written business is. We did see more of a drop in the backlog in the third from Q3 to Q4 than we had expected with the exceptional deliveries that we had.
Our written business in the Q4 we thought was gonna be a little stronger than it came in.
Understood. The second question I had was on the variable SG&A as a percentage of sales, it was a little bit higher than what, you know, I anticipated and obviously a step up from 2022. Can you parse out where you're seeing inflation and how much is, you know, inflation's across, you know, wages or other parts of the business versus that third party financing cost?
Yes. Cristina, it's the majority of that is the third-party financing cost. If you recall, our agreement with Synchrony is based on LIBOR. If you look at the LIBOR trends over the last 4 quarters, we get our LIBOR rates get set frequently during the year. Sometimes we get caught up with them. You'll have rates go up more, you know, in one period, and then they'll charge us in latter periods, their rates will go up. Big picture, if you've got about a third of, you know, a third of our sales or credit sales, and you're seeing a 200 to 300 basis point increase in LIBOR over those four quarters, you know, you're gonna see these kind of numbers hit you.
We saw it in the Q4, and then we're continuing to see rates rise. That's, you know, we basically took the, you know, the 18.9% variable G&A number for Q4, and we're seeing where rates have gone up, and we think they're gonna continue to go up. That's when we pushed up our variable G&A guidance from 18.9% up to, you know, 19.5% to 19.7%.
Okay. That makes sense. What are you seeing from the new website as far as customer engagement? On the back of that launch, any changes in your marketing plans or social media as we move through 2023?
Yeah. Cristina, you know, as we said, and we thought we were excited to get it launched in December. What we have seen has been encouraging is, we have seen an increase in engagement from our visitors, and we have seen an increase in new visitors, and also an improvement with our organic traffic there. Those are encouraging things we are doing and have started experimenting with some personalization and A/B testing, but still very early in the process. I would say at this time, we have not made any strategic changes in the first two months in our marketing plan.
Certainly we are excited about what we're gonna learn from it as we go forward, and that will impact our direction as to how we go about that, you know, as far as reaching to our customer, whether it's through social or through our other media, you know, television, sources that we're using.
The last question I had was on share repurchases and just, you know, capital deployment in general. You didn't make any in the Q4. Just your thoughts, you know, given the environment where today about being aggressive on share repurchases, increasing dividends, you know, all that for 2023. Thanks.
Well, that's something that the board decides, obviously. We, we have increased our dividend, every year for a number of years. We like that track record. We, we do have the ability to buy the stock. We have not announced anything on that. We, we look at that opportunity every quarter with our board. We do meet with them this week.
Thank you, and good luck this quarter.
Okay.
Thank you.
Thank you so much, Cristina.
Thank you. We've reached the end of our Q&A session. I'd like to turn the floor back over to management for any further closing comments.
Well, we appreciate your participation in today's call, and we look forward to talking to you in the future when we release our Q1 results later this year. Thank you.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.