Bassett Furniture Industries, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended August 26, 2023. Unaudited results; amounts below are in millions of dollars unless stated otherwise. Bassett designs, manufactures, sources, and sells home furnishings through wholesale channels and company- and licensee-owned Bassett Home Furnishings stores. It reported 89 branded stores, including 57 company-owned stores.
Financial performance and liquidity
- Quarter revenue: $87.2, down 26.1% from $118.0. Gross profit was $45.0; gross margin was 51.6%, versus 51.5%. Operating loss was $3.8, compared with operating income of $10.7; net loss was $2.6, or $0.30 per diluted share, versus net income of $7.6, or $0.82 per diluted share.
- Nine-month revenue: $295.4, down 19.0% from $364.6. Gross profit was $155.1; gross margin improved to 52.5% from 50.5%. Operating income was $1.4, versus $28.2; net income was $0.9, or $0.11 per diluted share, versus $60.3, or $6.34 per diluted share.
- Cash flow: Operating activities provided $10.2 for the nine months, versus $12.3 used in the prior-year period. Capital expenditures were $14.7. Cash and cash equivalents declined $13.6 to $48.0; short-term CD investments were $17.7, for combined cash and investments of $65.8.
- Balance sheet and liquidity: Current assets were $161.1 and current liabilities $82.0 at August 26, 2023. Total assets were $369.0 and stockholders’ equity $188.8. The company had no reported borrowings under its unsecured $25.0 million credit facility, but $3.7 million was committed to standby letters of credit, leaving $21.3 million available. It was in compliance with facility covenants; the facility matures January 27, 2025.
- Lease obligations: The filing reports a present value of lease obligations of approximately $105.9. These are significant fixed commitments despite the absence of reported bank borrowings.
- Shareholder returns: Nine-month dividends were $4.4; the prior-year period included a $1.50-per-share special dividend. Bassett repurchased 249,480 shares for $4.1 and had $21.9 available under its repurchase plan. Regular dividends were $0.18 per share for the quarter.
Material changes and operating trends
- Quarter sales fell 28% in wholesale and 26% in company-owned retail; nine-month sales declined 25% and 16%, respectively. Management cited weaker demand and lower shipments. Written retail sales were down 13% for the quarter and 15% year to date.
- Lower sales caused fixed-cost deleverage: consolidated SG&A rose to 56.0% of quarterly sales from 46.3%, and to 52.4% year to date from 44.0%. The quarterly retail segment recorded a $3.0 operating loss; wholesale operating income was $6.3.
- Wholesale backlog fell to $19.9 from $41.7 a year earlier; retail backlog fell to $32.7 from $60.0. Both also declined from November 2022.
- Inventory declined to $66.9 from $85.5 at November 2022. Cash from operations benefited from lower inventory investment, while customer deposits also declined to $23.6 from $36.0.
- Comparisons are affected by unusual prior-year items: the 2022 quarter included a $4.6 gain on sale of real estate; 2022 nine-month net income included a $40.5 after-tax gain from selling Zenith Freight Lines. Zenith was sold in February 2022 and is presented as discontinued operations. The 2023 nine-month result included a $1.0 gain from reducing Noa Home contingent consideration.
Outlook, commentary, and risks
- No full-year revenue or earnings guidance is provided. Management expects fiscal 2023 capital expenditures of $17–$19 million and believes available cash, expected operating cash flows, and credit-line capacity are sufficient for foreseeable operating needs.
- Management expects improved margins in fiscal 2024 for Bassett Leather, citing lower current freight costs than on inventory received during 2022. It also expects further Bassett Casegoods margin improvement in fiscal 2023’s fourth quarter. These are segment-specific expectations, not consolidated guidance.
- Bassett launched a redesigned website in August 2023 and had spent approximately $4.2 million on the project through the period end. It introduced Noa Home in the U.S. in August and planned advertising in selected markets in Q4; Noa Home’s reported results were not material.
- Key risks include weak consumer demand and retail traffic, higher interest rates and reduced consumer credit availability, input and delivery costs, supply-chain and import disruption, store profitability and potential closures, cybersecurity, foreign-currency exposure at Noa Home, and possible impairment of owned or leased retail real estate. Management noted that inventory reserves may need to increase if demand or market conditions worsen.
- Legal and environmental matters arise in the normal course; management said it does not expect their resolution to materially adversely affect financial position or future results. A licensee lease guarantee was $1.9 million, with five years remaining. Disclosure controls were deemed effective, and no material change in internal control was reported.
Most important facts for investors to verify
- Whether sales and order trends stabilize, given sharp declines in revenue and backlogs.
- Whether gross-margin gains can offset continued fixed-cost deleverage and support a return to operating profitability.
- Whether management’s expected wholesale margin recovery and $17–$19 million capital-spending plan are achieved.
- How cash generation, inventory, customer deposits, lease commitments, and covenant headroom evolve.
- Whether the website relaunch and Noa Home U.S. expansion produce measurable sales, while monitoring Noa Home valuation and currency risks.