Greetings and welcome to the Haverty first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Richard Hare, Chief Financial Officer. Thank you, sir. You may begin.
Thank you operator. During this 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 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 Steve Burdette, will provide additional commentary about our business.
Good morning. Thank you for joining our first quarter conference call. Consolidated sales decreased 5.9% to $224.8 million, with comparative store sales down 6.7%. Earnings per share came in at $0.74 versus $1.11 last year. In the face of difficult headwinds and the shift of consumer spending and inflationary pressures, I believe our teams delivered a strong performance. As we anniversary our business against the outside, outsized demand generated by COVID, our incoming orders have declined. For Q1, our written sales were down 11.7%, and written comp store sales declined 12.7% for the quarter. However, this year's written sales compared to Q1 of 2019 were up 10.9%, with written comp store sales up 6.9%.
We're building our reputation for quality service, and design. Our free design service continues to drive increases in average sales, and these services are helping grow our special order business. Our strong design service and excellent sales teams, along with a high quality, further separates us from the more promotional players in our industry. I share our team's enthusiasm for the new collections and merchandise hitting our floors. We've developed great values and exciting new styles which we believe will be well accepted by our customers. We've added to our curated collections and online exclusives, which greatly broaden our breadth of products. This spring, we're bringing in several new collections of outdoor furniture and enhance new category for our stores.
With the major reductions in orders from our factories, we're getting lower minimum shipments, which will put less pressure on our buying teams to bring in new products without risking over-inventory problems. We're in a strong inventory position and are rightsizing our buying for what we need compared to large orders we were required to place during the last few years. In February, we opened a new location in Durham North Carolina. We plan to open three stores in the fourth quarter in Concord, North Carolina, north of Charlotte, Dayton, Ohio, and a store south of Richmond Virginia. Our development and real estate teams are actively evaluating and reviewing the number of store opportunities that we're seeing in our delivery footprint.
We've invested, upgraded, and repositioned our stores in our 16-state footprint over the past several years, which sets us up to be able to add to our store fleet. We have the range to serve several more states from our DCs. We think there will be a number of retail locations that will be available in the coming months that would help us reach new markets and expand our presence in existing markets. We have a long, 138-year history of gaining market share during difficult times, and we believe that we're in exceptionally strong position with our solid balance sheet to grow our store count in our regions.
While housing sales in the South are an important indicator for our business, we believe our move to personalization and customization, along with our strength in the faster-growing southern markets, help offset softer housing numbers. We were encouraged by the recent better selling news from home builders. As housing prices moderate and mortgage rates improve, we expect to see some positive movement in our sales. Havertys is driven to help our customers' vision of their home come to life. I believe that we're in the best position in our industry as well as in our history to deliver on that vision. We deliver on that promise, we will gain share and build our return for our shareholders. I turn the call now over to Steve Burdette, our president.
Thank you Clarence, and good morning. While we were hoping for stronger results in the first quarter, we are appreciative of the hard work that our team members are putting in every day to ensure that we are furnishing happiness to each and every customer. Our supply chain network continues to operate with normalized lead times. Our inventories were down 4.7% from Q1 last year. However, our backlog continues to decrease with our average age of the own arrival backlog dropping below 6 weeks. We continue to feel that our backlog will be back to pre-pandemic levels by early summer.
We are encouraged to continue to see freight rates continuing to drop as we just finalized our contracted rates for the upcoming year beginning May 1. Our special order business was a bright spot for the quarter as we increased our business by over 40% year-over-year to be almost 30% of our total upholstered sales. Our experiment with offering more special order color options from our upholstery import leather vendors has been a hit as we look to expand to other vendors. Our design business continues to show improvement as it grew to 26% of our business for the quarter. We expect our design business to continue to grow as we create more awareness and focus on each customer's experience. A key metric for design is our average ticket, which increased for the quarter approximately 11%.
We will be testing in the third quarter a new in-store point-of-purchase program to help elevate the customer's experience within our stores and provide our sales and design consultants with more tools to serve our customers' needs. We continue working on expected refinements to the website. We have engaged a new business partner to identify incremental optimizations and opportunities, including a roadmap for meaningful personalization, a robust A/B testing plan, continued technical and user experience optimizations, all driven by improved site behavior analytics. We'll start to see some of these implementations in place before the Memorial Day promotion. Our merchandising team has brought in lots of new products in Q1, with more arriving to help elevate the excitement of our sales teams and customers heading into the Memorial Day, which is our largest promotional period for the first half of the year.
We will continue to use credit as a trigger to entice the consumers during this important holiday, but we'll be more prudent in the use of credit in the non-holiday sale periods due to the increased cost from rising interest rates. Finally, we continue to focus on our execution, training, and retention across the organization. However, due to the drop in our backlogs and the current written trends, we will match our staffing levels to the current business trends. The expectation is that through normal attrition, this will be a reduction of over 200 positions or approximately 7% of the workforce by the end of the 2nd quarter. Now I will turn the call over to Richard.
Thanks Steve. In the first quarter of 2023, net sales were $224.8 million, 5.9% decrease over the prior-year quarter. Comparable store sales were down 6.7% over the prior-year period. Our gross profit margin increased 10 basis points to 59.1% from 59% due to better pricing discipline and merchandising mix, reduced rate costs, and a positive LIFO inventory adjustment. Selling General, and Administrative expenses increased $3.2 million or 2.8% to $118.4 million. As a percentage of sales, these costs approximated 52.7%, up from 48.2% in the prior-year quarter. We experienced increased selling, administrative, and occupancy costs, which were partially offset by reduced distribution and transportation expenses during the quarter.
Other income and expense in the first quarter bill and interest income increased to $1 million during the first quarter as interest earned on our cash deposits increased this past year as interest rates have increased. Income before income taxes decreased $10.3 million to $15.4 million. Our tax expense was $3.1 million during the first quarter of 2023, which resulted in an effective tax rate of 19.8%. The primary difference in the effective tax rate and the statutory rate is due to the state income taxes and the tax benefit from vested stock awards. Net income for the first quarter of 2023 was $12.4 million or $0.74 per diluted share on our common stock, compared to net income of $19.4 million or $1.11 per share in the comparable quarter last year.
Looking at our balance sheet at the end of the first quarter, our inventories were $114.3 million, which was down $4.1 million from year-end. At the end of the first quarter, our customer deposits were $46.4 million, which was down $1.6 million from year-end and down $52.1 million versus the Q1 2022 balance. We ended the quarter with $120.2 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q1 in 2023. During the first quarter of 2023, we amended and extended our retail program agreement with Synchrony Bank, who provides our customers with credit alternatives to purchase our products.
We extended our agreement for an additional seven-year term and replaced the LIBOR rate with a certain U.S. Treasury Securities rate as the interest rate benchmark. Looking at some of our uses of cash flow, capital expenditures were $6.7 million in the first quarter, and we also paid four and a half million dollars of regular dividends during the quarter. During the first quarter, we didn't purchase any common shares under our existing stock buyback program, and we have approximately $20 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'll highlight a few, but please refer to our press release for additional commentary. We expect our gross margins for 2023 to be between 58 and a half and 59%.
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 $289 million-$292 million range. The variable type cost within SG&A for 2023 are expected to be in the range of 19.5%-19.7%, with the increases over 2022 primarily being inflation driven. Our planned CapEx for 2023 has increased to $53.1 million. As previously disclosed, we're in the process of purchasing our Florida distribution center for approximately $28.2 million. We anticipate closing on this transaction in the second quarter of this year. Anticipated new or replacement stores, remodels, and expansions account for an additional $16.7 million.
Investments in our distribution network are expected to be $5.8 million, and investments in our information technology are expected to be approximately $2.5 million. Our anticipated effective tax rate for 2023 remains at 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the first quarter financial results. Operator, we would like to open the call up for questions at this time.
Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.
Good morning, and thank you for taking the questions. First, just going back to Q1, if you could, you know, just give us a little bit more details, please, as far as the written sales trends. Just curious to see if you guys saw any notable variation month to month. Obviously, I know Presidents' Day is a key holiday and within the quarter, but just wanted to, you know, get a sense as to whether business was kind of steady or was there, you know, much difference month to month. As far as product categories, if you can also comment on that as well, how that trended, that'd be very helpful.
Sure Anthony, it's Richard. On the written sales trends, we're pretty consistent during the quarter of January, February, March were all low single digits. January was, February was almost mid-single digit. Excuse me, slightly above double digit, then low double digit in March, fairly consistent on the written side. The delivery side was a little different. Our deliveries were up in January, very low single digits, then we were down mid-single digits in February and very low double digits in March. That pattern was somewhat different. Just in terms of our category revenue by category, we did see an increase in case goods in the first quarter. It went from 31% up to 35% in terms of deliveries and sales.
Upholstery flipped from 46.5% down to 42.6%. Mattresses were pretty flat at 8.2%-8.3%. That kind of rounded out the revenue mix.
All right. Thank you Richard for that. And then, you know, Memorial holiday's obviously an important holiday for furniture shopping. So how would you describe your strategy as far as demand levers for this holiday versus last year? I know you said that you'll use credit, although obviously it's gotten more expensive. So maybe if you could just talk about what your strategy is here for the key Memorial Day holiday.
Yeah Anthony this is Steve. We've, we're gonna have the same, pretty much promotional calendar going for the Memorial Day as we did last year, from a sale period as far as pricing, et cetera. Then from a credit side of things, we will be using the 60 months, during that time period. you know, what I made a comment too, is we will not be using in the non-promotional periods. We will just focus it around the Memorial Day event, the two-week holiday event kind of leading up to it.
Mm-hmm. Got you. Okay, a couple of other questions if I could. You talked about outdoor furniture as a new category. Is this going to be in stores and online or just online? As far as like the number of SKUs that you plan to offer, can you give us a sense of that? I just wanted to see what the potential opportunity could be.
Anthony, it'll be both. We are adding product to about half of our stores that'll be in stock and exclusive to us, and we also will be offering some online opportunities that will be available. Most of that's gonna be later this quarter and next month. It's really set up for later in the year. We think it'll be an important add to our stores, particularly the ones that are in Florida and Texas. It's not gonna be a big category, we're gonna be careful with it, but it's gonna be addition.
Understood. Yeah thanks Clarence. Lastly, as far as share repurchases, Richard I know you said you have $20 million left on the buyback. I know over time you guys have done a terrific job of returning cash to shareholders through share repurchases as well as dividends. Specifically as far as share buybacks, haven't seen anything last couple of quarters. You know, how should we think about share repurchases here on a go-forward basis?
Well, we review that every quarter with our board, and we have a meeting coming up in May. That's to be determined.
Okay. Sounds good. All right. Well, thanks and best of luck.
Okay, Anthony. Thank you.
Thank you. Our next question comes from the line of Cristina Fernández with Telsey Advisory Group. Please proceed with your question.
Hi, good morning. I have a couple of questions. The first one is on the SG&A expenses. They, you know, they increase at least the fixed side about 300 basis points in the first quarter relative to last year. And the overall margin came in, you know, around the 6.4%. In the past, you've talked about maintaining a double-digit operating margin. I wanted to see your outlook. Was there anything specific to the first quarter? I know that, you know, the volume tends to be a little bit light, but that will allow you to get closer to that double-digit operating margin as we move through the rest of the year.
Hey good morning Cristina t his is Richard so, Yeah, our variable G&A component was up, I believe, to 20% this past quarter. The volume was pretty low, which really exacerbated that percentage, with the attrition and the headcount reduction that Steve Burdette mentioned, I believe, of approximately 7% of the workforce or 20%. That should help us on an ongoing basis. That's kind of why we're guiding back down to the 19.5%-19.7% of G&A. And then on the guidance that came down on the G&A for the non-variable is mostly related to advertising and warehousing costs. We expect, you know, to match our levels of written business to the current trends.
We'll adjust slightly our advertising strategy, and then we don't expect to see discrete type expenses that we saw in the prior years. We think that'll certainly help us out in the future on the non-variable piece.
Thank you, and t o clarify then on the gross margin, the 50 basis points of improvement in the guidance for the year, where exactly is that coming from?
It's in a number of places, I mean, reduction in freight cost is driving that primarily, and we're seeing those rates return back to pre-pandemic levels, if not better. Secondarily, just the overall LIFO impact. Last year in the first quarter, we had, I believe about a $1 million expense we booked. In the first quarter of this year, it was approximately a $1 million pickup. We should see some improvement in LIFO. The last two years, we've had significant expense, and we would expect to see some recovery of that, ongoing this year.
My last question. Any thoughts around the impact of Bed Bath & Beyond on your business? I know that they're not a direct competitor, but we've seen other furnishing companies be a little bit more promotional, so d id you expect any impact near term and perhaps longer term? Talk about the real estate strategy and any opportunity that could arise from those boxes coming on the market.
They have not impacted our sales. We are very interested in looking at the opportunities for store locations in existing markets and some target markets that we can add. As you know, there are several hundred of them that will all be done through auction and also working with some of the landlords. We're interested in it. We're very active in evaluating it. We think this could be an opportunity for us similar to what we've done in the past. We've been very good at converting existing retail boxes to Havertys. We've done it with Linens 'n Things, HHgregg's, Town Mart, Circuit City, Homelife, and we've got some of those buildings in our portfolio today.
We think there could be opportunities there, and we're very closely evaluating those potentials.
Thank you.
Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Hare for any closing remarks.
Well, we appreciate your participation in today's call, and we look forward to talking to you in the future when we release our second quarter results later this year. Have a great day.