Bassett Furniture Industries, Inc. (NASDAQ: BSET) — FY2021 Form 10-K
Reporting period: Fiscal year ended November 27, 2021 (52 weeks). Amounts below are in millions of dollars unless stated otherwise. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing.
Business context
Bassett designs, manufactures, sources, markets and retails home furnishings through wholesale channels, 63 company-owned and 34 licensee-owned Bassett Home Furnishings stores, and its website. It also operates Zenith Freight Lines, a furniture-focused logistics business. More than 75% of products sold are U.S.-manufactured; about 24% of wholesale sales were imported in FY2021.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Total revenue | $486.5 | $385.9 | Up 26.1%; also 7.6% above FY2019 |
| Furniture and accessories revenue | $430.9 | $337.7 | Up 27.6% year over year |
| Logistics revenue | $55.6 | $48.2 | Up 15.5% year over year |
| Operating income (loss) | $26.0 | $(16.2) | Operating margin 5.3%, versus (4.2%) |
| Net income (loss) | $18.0 | $(10.4) | Basic and diluted EPS of $1.83, versus $(1.05) |
| Cash from operations | $14.6 | $36.7 | Lower by $22.1, primarily from inventory investment |
Wholesale segment operating income was $17.5 million; company-owned retail operating income was $7.0 million, returning from a $9.5 million loss; logistics operating income was $1.7 million. Wholesale gross margin was 31.6% and retail gross margin was 52.2% (segment measures include intercompany sales). Consolidated furniture and accessories gross profit was $221.1 million, approximately 51.3% of that revenue. Higher materials and inbound freight costs weighed on wholesale margins, partly offset by fixed-cost leverage. Retail gross margin improved 280 basis points year over year, attributed primarily to lower promotions and improved clearance margins.
Fourth quarter: Revenue was $129.9 million, operating income $7.1 million, net income $5.0 million, and diluted EPS $0.52. In Q4 FY2020, revenue was $118.4 million, operating income $10.0 million, net income $6.5 million, and diluted EPS $0.65.
Financial position, liquidity and capital allocation
- At year-end, cash and cash equivalents were $34.4 million and short-term investments $17.7 million, totaling $52.1 million. Current assets were $180.3 million and current liabilities $134.2 million.
- Inventory rose to $78.0 million from $54.9 million, reflecting investment to fulfill backlogged orders and manage supply constraints.
- The $25 million revolving credit line had $21.1 million available after $3.9 million of standby letters of credit; the filing does not report a funded draw. The facility in effect at year-end matured January 2022. A replacement $25 million unsecured facility was signed January 27, 2022, maturing in 2025, with financial covenants.
- Lease obligations were significant: operating lease liabilities totaled $133.5 million and finance lease liabilities $7.6 million. Total future minimum lease payments across leases were $164.9 million before discounting.
- FY2021 capital expenditures were $10.8 million. The company paid regular dividends of $0.53 per share and a special dividend of $0.25 per share, and repurchased 204,714 shares for $5.6 million.
Changes, outlook and material developments
- FY2021 revenue and profitability rebounded from pandemic-affected FY2020. Compared with pre-pandemic FY2019, furniture and accessories revenue was up 6.7%; company-owned retail sales were down 7.8%, while external wholesale sales were up 35.4%.
- Wholesale orders were 29% above FY2020 and 28% above FY2019. Wholesale backlog reached $90.1 million, up from $54.9 million; retail backlog was $82.9 million, up from $57.0 million.
- Management expected backlogs to decrease gradually during FY2022 as incoming orders moderated and manufacturing and shipping activity increased. It expected wholesale gross margins to be slightly affected in the first half of FY2022 while working through backlog orders and price increases.
- Management cited pandemic-related labor shortages, supply-chain and shipping delays, inflation, and rising material and freight costs. Prolonged delivery delays could prompt order cancellations and refunds of customer deposits. Retail store traffic had declined for three years; management anticipated fewer stores over time while evaluating locations individually.
- Management forecast FY2022 capital expenditures of approximately $25–$30 million, including retail-site work, outdoor-furniture capacity, technology and manufacturing upgrades.
- On January 31, 2022, after year-end, Bassett agreed to sell substantially all Zenith assets to J.B. Hunt for approximately $87 million cash, subject to customary closing conditions; the company expected closing by February 28, 2022.
- FY2020 included $15.2 million of other charges, primarily asset and goodwill impairment, plus litigation costs. The wage-and-hour claims were settled at no additional cost; the FY2021 filing reports no comparable impairment or litigation charge.
Key risks and contingencies
Key disclosed risks include continuing COVID-related disruption, supply-chain and labor constraints, inflation and raw-material costs, consumer demand and housing-market weakness, intense retail and online competition, store performance, dependence on foreign sourcing, and operational, regulatory and driver risks at Zenith. The company also identifies cybersecurity and systems risks, licensee credit exposure and possible impairment of owned or leased retail locations. It reported $1.8 million of contingent licensee lease guarantees and stated that pending claims and environmental matters were not expected to have a material adverse effect based on information then available. The auditor issued unqualified opinions on the financial statements and internal controls; the critical audit matter was measurement of excess and obsolete inventory reserves.
Important facts for investors to verify
- Whether the Zenith asset sale closed, the final proceeds and any related costs or tax effects.
- Whether wholesale and retail backlogs declined as management anticipated, and whether cancellations or deposit refunds affected cash or sales.
- Whether price increases offset inflation in materials, freight and labor, particularly in wholesale margins during the first half of FY2022.
- FY2022 capital spending, store changes and the performance of company-owned retail locations.
- Liquidity and covenant compliance under the replacement credit facility, including the impact of the Zenith transaction on its tangible-net-worth covenant.
- Inventory valuation and obsolescence assumptions, a significant estimation area highlighted by the auditor.