Bassett Furniture Industries, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Quarter ended March 2, 2024. The quarter included 14 weeks, compared with 13 weeks in the prior-year quarter ended February 25, 2023. Amounts below are in millions unless otherwise noted.
Business context and results
Bassett designs, manufactures, sources and sells home furnishings through wholesale channels, company-owned stores, licensee-owned stores and online. It reported 88 Bassett Home Furnishings stores at quarter-end: 58 company-owned and 30 licensee-owned. Two company-owned stores opened; one licensee-owned store closed.
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $86.554 | $107.698 | Down 19.6% |
| Gross profit / margin | $47.867 / 55.3% | $57.197 / 53.1% | Profit down 16.3%; margin up 220 bps |
| SG&A | $50.224 / 58.0% of sales | $54.495 / 50.6% | Expense down 7.8%; ratio up 740 bps |
| Operating income (loss) | $(2.357) / (2.7%) | $2.702 / 2.5% | Declined $5.059 |
| Net income (loss) | $(1.193) | $1.445 | EPS: $(0.14) vs. $0.16 |
| Operating cash flow | $(7.739) | $0.563 | Cash used increased |
| Capital expenditures | $2.076 | $3.341 | Down $1.265 |
Sales fell across channels despite the extra fiscal week: wholesale sales decreased 21.7%, company-owned retail sales decreased 17.3%, and Corporate and Other sales decreased 36.9%. Management cited lower demand and shipments; Noa Home sales also declined, including following its exit from Australia. Gross margin improved in both wholesale and retail, but lower sales left fixed costs less absorbed and drove operating losses.
Cash, liquidity and obligations
- Cash and cash equivalents were $40.609 at March 2, down from $52.407 at November 25, 2023. Short-term certificates of deposit were $17.775, making cash and short-term investments $58.384.
- Current assets were $149.505 and current liabilities $73.285. The company reported no funded bank borrowings; $3.731 of standby letters of credit used its $25.000 credit facility, leaving $21.269 available.
- Operating lease obligations totaled $112.842 on the balance sheet; the filing separately describes the present value of lease obligations as $113.143. Lease obligations are a significant commitment.
- Cash dividends paid were $1.573; regular dividends per share were $0.18, versus $0.16 in the prior-year quarter. No shares were repurchased during the quarter; $21.823 remained available under the repurchase plan.
Outlook, commentary and risks
- Management expects fiscal-year capital expenditures of $12–$14 million. It believes available cash, expected operating cash flows and credit availability are sufficient to fund operations for the foreseeable future.
- Wholesale margins improved 200 basis points, with management expecting further improvement in Q2 FY2024 and a return to normal margins in Q3, primarily as higher-cost Bassett Leather inventory clears. This is an expectation, not a guarantee.
- The credit facility’s fixed-charge coverage and lease-adjusted leverage covenant limits were temporarily amended for the quarter ended March 2, 2024. Bassett reported compliance with the amended covenants; limits revert to the prior thresholds for the quarter ending June 1, 2024. The company was negotiating an amended, restated or new agreement, targeted by the end of Q2 2024.
- Key risks include weak consumer demand and store traffic, consumer access to credit, competition, input and freight costs, tariffs and supply-chain disruption, manufacturing concentration, Noa Home execution, cybersecurity, and potential impairment of retail real estate or leased locations.
- Legal and environmental matters arise in the ordinary course; management did not expect their resolution to materially adversely affect financial position or future results. A licensee lease guarantee was $1.750, with about four and a half years remaining.
- Controls and procedures were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Most important facts to verify
- Confirm the operating cash-flow amount: the cash-flow statement reports cash used of $7.739 million, while MD&A states $7.736 million.
- Track demand and order trends, including retail written sales, wholesale shipments and backlog. Wholesale backlog was $19.491 million and retail backlog $31.307 million, both below prior-year levels.
- Monitor the credit-facility negotiations and the return to stricter covenant limits beginning with the June 1, 2024 quarter.
- Assess whether the forecast wholesale margin recovery occurs as expected and whether sales volumes recover enough to improve fixed-cost absorption.
- Compare actual fiscal-year capital spending with the $12–$14 million outlook and monitor cash use, dividends and liquidity.