Press release·11/04/2024 21:15:26

Financial Performance Overview

The company has reported its financial results for the third quarter and first nine months of 2024. The key highlights are:

• Total sales for the third quarter of 2024 decreased 20.2% to $175.9 million compared to the same period in 2023. Comparable-store sales also declined 20.5% in the quarter.

• For the first nine months of 2024, total sales decreased 17.3% to $538.5 million and comparable-store sales were down 17.7% compared to the same period last year.

• Gross profit margin for the third quarter was 60.2%, down 60 basis points from the prior year period. For the first nine months, gross margin was 60.3% compared to 60.1% in 2023.

• Selling, general and administrative (SG&A) expenses as a percentage of sales increased to 57.4% in the third quarter from 51.1% a year ago. For the year-to-date period, SG&A was 58.2% of sales versus 52.4% in 2023.

• The company had $121.2 million in cash and cash equivalents and $6.2 million in restricted cash as of September 30, 2024. It has access to an $80 million revolving credit facility.

Revenue and Profit Trends

The company has experienced significant declines in both total sales and comparable-store sales over the past year. In the third quarter of 2024, total sales fell 20.2% and comp-store sales dropped 20.5% compared to the same period in 2023. For the first nine months of the year, total sales were down 17.3% and comp-store sales declined 17.7%.

The company attributes these sales declines to several factors:

• Demand for home furnishings rose rapidly during the COVID-19 pandemic as consumers redecorated their homes and set up home offices, pulling forward sales.

• Recent inflationary pressures and economic uncertainty have had negative effects on consumer discretionary spending.

• High interest rates have exacerbated the small supply of homes available for sale and further weakened the housing market, negatively impacting demand for furniture.

These macroeconomic headwinds have adversely impacted the company’s sales volumes in each quarter of 2024 so far.

Despite the sales declines, the company has maintained relatively stable gross profit margins. Gross margin for the third quarter was 60.2%, down only 60 basis points from the prior year period. For the first nine months, gross margin was 60.3% compared to 60.1% in 2023. The company attributes this to favorable product selection and merchandising mix.

However, the significant drop in sales has put pressure on the company’s profitability. SG&A expenses as a percentage of sales increased to 57.4% in the third quarter, up from 51.1% a year ago. For the year-to-date period, SG&A was 58.2% of sales versus 52.4% in 2023. This is largely due to the fixed nature of many SG&A costs, which do not fluctuate in line with sales volumes.

The company has taken steps to reduce SG&A costs, including lower commission-based compensation, reduced warehouse and delivery costs, and decreases in administrative expenses. However, these savings have not been enough to fully offset the impact of the sales declines on profitability.

Strengths and Weaknesses

Strengths:

• Stable gross profit margins: Despite the sales challenges, the company has maintained relatively stable gross profit margins around 60%, indicating effective product selection and merchandising.
• Strong liquidity position: The company has a healthy cash balance of $121.2 million and access to a $80 million revolving credit facility, providing ample liquidity to fund operations and investments.
• Diversified sales channels: The company operates both physical stores and an e-commerce platform, allowing it to reach customers through multiple channels.

Weaknesses:

• Declining sales and profitability: The company has experienced significant declines in both total sales and comparable-store sales over the past year, putting pressure on its profitability.
• Inability to fully offset fixed costs: While the company has taken steps to reduce SG&A costs, the fixed nature of many of these expenses has made it difficult to fully offset the impact of the sales declines.
• Exposure to macroeconomic headwinds: The company’s performance is heavily influenced by broader economic factors such as consumer spending, interest rates, and the housing market, which have been unfavorable in recent periods.

Outlook and Future Prospects

Looking ahead, the company expects the challenging macroeconomic environment to persist, with continued pressure on consumer discretionary spending and the housing market. As a result, the company anticipates that its annual gross profit margins for 2024 will be in the range of 60.0% to 60.5%.

The company also expects its variable SG&A expenses within SG&A for the full year of 2024 to be 19.6% to 19.9% of sales, a 10 basis point decrease from previous guidance. Fixed and discretionary SG&A expenses are expected to be approximately $279.0 to $281.0 million for the full year, a decrease of $3.0 million from previous guidance.

While the company has taken steps to reduce costs, the fixed nature of many of its SG&A expenses will likely continue to put pressure on its profitability in the near term. The company’s ability to navigate the current macroeconomic environment and adapt its operations accordingly will be crucial in determining its future performance.

Overall, the company’s financial results for the third quarter and first nine months of 2024 reflect the significant challenges it is facing due to the broader economic conditions. While the company has maintained a strong liquidity position and taken measures to control costs, the decline in sales and profitability remains a significant concern. The company’s future outlook will largely depend on its ability to adapt to the evolving market conditions and find ways to drive sales and improve operational efficiency.