Bassett Furniture Industries, Inc. — FY2022 Form 10-K
Business context and reporting period. Bassett designs, manufactures, sources, markets and sells home furnishings through wholesale channels, its website and 91 Bassett Home Furnishings stores (58 company-operated and 33 licensee-operated). Fiscal 2022 was the 52 weeks ended November 26, 2022. The filing reports dollars in thousands; amounts below are rounded to millions unless stated otherwise.
Financial performance and position
- Revenue: Consolidated furniture and accessories sales were $485.6 million, up 12.7% from $430.9 million. Company-owned retail sales rose 15.8% to $286.9 million; wholesale sales to external customers rose 8.5% to $198.7 million.
- Profit and margins: Gross profit was $248.3 million, with a 51.1% gross margin versus 51.3% in 2021. Continuing-operations income was $25.4 million, or $2.70 per diluted share, compared with $16.9 million, or $1.72 per diluted share. Operating income was $34.9 million, including a $4.6 million real estate gain. Net income was $65.3 million, or $6.96 per diluted share, substantially reflecting the after-tax gain on the Zenith sale.
- Segment results: Wholesale operating income fell to $9.3 million from $17.5 million; retail operating income increased to $21.5 million from $7.0 million. Segment gross profit measures include intercompany transactions and are identified by the company as non-GAAP.
- Cash flow: Operating activities used $3.0 million, versus providing $14.6 million in 2021. Investing activities provided $65.8 million, primarily from the Zenith sale and Houston property sale; financing activities used $35.6 million, including dividends and repurchases. Cash and cash equivalents increased $27.3 million to $61.6 million.
- Liquidity and debt: Cash plus short-term investments totaled $79.3 million. No bank borrowings were reported; $3.9 million of the $25 million credit facility was committed to standby letters of credit, leaving $21.1 million available. The company reported compliance with facility covenants. Operating lease liabilities totaled $116.3 million; lease commitments and guarantees are additional obligations.
- Capital returns: The company paid $0.60 per share in regular dividends and a $1.50-per-share special dividend, and repurchased $15.1 million of stock during FY2022.
Material changes versus FY2021
- Sales increased, but consolidated gross margin edged down 20 basis points. Management attributed cost pressure to raw materials and inbound freight; price increases and improved fixed-cost leverage partly offset those costs.
- Wholesale backlog declined to $35.3 million from $90.1 million, with incoming orders down 15% and supply-chain constraints easing. Retail backlog fell to $51.0 million from $82.9 million; written retail sales declined 7.4%.
- Zenith Freight Lines was sold to J.B. Hunt in February 2022. Bassett received $84.5 million in net proceeds and recorded a $52.5 million pretax disposal gain; Zenith is presented as discontinued operations. Bassett entered a seven-year logistics services agreement with J.B. Hunt.
- Bassett acquired Noa Home, an international e-commerce furniture retailer, in September for $5.9 million cash plus $1.4 million of contingent consideration. Its FY2022 results were not material.
- Cash from operations weakened partly because of higher income-tax payments related to the Zenith sale and lower customer deposits as retail orders slowed. Cash balances nonetheless rose, driven mainly by sale proceeds.
Outlook, management commentary and risks
- Management expects approximately $25 million of FY2023 capital expenditures, including store renovations and buildouts, outdoor-furniture facility expansion and information technology. It also expects about $2 million of FY2023 spending on digital transformation and plans to launch a new e-commerce platform in the second quarter of 2023.
- The company planned a U.S. introduction of the Noa Home brand in 2023 and was evaluating its five regional fulfillment centers before deciding on further expansion. Store traffic and written sales were weakening; management expects to continue reviewing store locations and indicated the retail network may shrink.
- Wholesale leather margins faced continued pressure from discounted inventory purchased at elevated freight costs; management expected lower margins for that product line for the next two quarters as inventory normalized.
- Key risks include consumer-demand and housing-market weakness, inflation and input-cost volatility, store and licensee performance, competition (including online), foreign sourcing and trade disruption, inventory obsolescence, cybersecurity and execution risks related to Noa Home and digital initiatives. Management said COVID-related supply-chain and labor issues were substantially resolved by year-end, while warning of possible renewed disruption.
- The company disclosed routine claims and litigation, but said their resolution was not expected to materially affect its financial position or future results. The auditor issued unqualified opinions on the financial statements and internal controls; the inventory reserve estimate was identified as a critical audit matter.
Important facts for investors to verify
- How much FY2022 net income and cash generation are sustainable without the one-time Zenith disposal gain and property-sale gain.
- Whether order trends, retail traffic and backlogs stabilize, and whether remaining leather inventory clears without further margin or inventory charges.
- Performance and investment requirements of Noa Home, the regional fulfillment centers and the planned e-commerce platform.
- FY2023 capital spending, cash-flow outlook, liquidity and covenant headroom, including the impact of lease obligations and shareholder returns.
- Potential store closures, licensee credit exposure and changes in customer-credit-loss and excess-inventory reserves.