Bassett Furniture Industries, Inc. — Q2 2024 Form 10-Q
Reporting period: Quarter ended June 1, 2024; balance-sheet comparisons are with November 25, 2023. Six-month 2024 results cover 27 weeks versus 26 weeks in the prior-year period. Unless otherwise noted, financial amounts below are in millions of dollars.
Business context and financial performance
Bassett designs, manufactures, sources and sells home furnishings through wholesale channels and company-owned and licensed Bassett Home Furnishings stores. It reported 88 stores at quarter-end: 58 company-owned and 30 licensee-owned.
| Metric | Q2 2024 | Q2 2023 | Six months 2024 | Six months 2023 |
|---|---|---|---|---|
| Net sales | $83.4 | $100.5 | $170.0 | $208.2 |
| Gross profit / margin | $43.8 / 52.5% | $52.8 / 52.6% | $91.6 / 53.9% | $110.0 / 52.8% |
| Operating income (loss) | $(8.5) | $2.5 | $(10.8) | $5.2 |
| Net income (loss) | $(7.2) | $2.1 | $(8.4) | $3.5 |
| Diluted EPS | $(0.82) | $0.24 | $(0.96) | $0.40 |
Liquidity, cash flow and obligations
- Six-month operating cash flow was a use of $1.9, versus cash provided of $6.4 in the prior-year period. Cash and cash equivalents declined $9.8 to $42.6; cash plus short-term investments totaled $60.5 at June 1.
- Capital expenditures were $3.7 in the first half. Management expects full-year capital expenditures of $8–$10 million. Dividends paid were $3.2; share repurchases were $0.5, with $21.3 remaining under the repurchase authorization.
- Current assets were $143.1 and current liabilities $71.0. The balance sheet reports no conventional borrowings; operating lease obligations totaled $109.2.
- A renewed credit facility provides a line of up to $25.0. Standby letters of credit used $6.0 of the facility. The filing says additional availability was limited to $2.2. Financial covenants are triggered at a higher used-commitment threshold; although no ratio test was required at quarter-end, management stated it would not have met either required ratio if tested.
- Licensee lease guarantees were $5.3, with remaining terms of up to six years. The company reported $24.4 of net book value in company-owned retail real estate.
Material changes and management commentary
- Consolidated sales fell 17.0% in Q2 and 18.4% year to date. Management attributed the declines primarily to lower wholesale shipments and company-owned retail sales. Wholesale sales declined 14.8% in Q2; retail sales declined 17.0%.
- Q2 gross margin was down 10 basis points year over year; first-half margin improved 110 basis points. Management reported adjusted gross margins, excluding additional inventory valuation charges, of 55.7% for Q2 and 55.5% year to date, versus 53.6% and 53.3%, respectively, in the prior-year periods. These are non-GAAP measures.
- SG&A as a share of sales rose 490 basis points in Q2 and 620 basis points year to date, primarily because lower sales reduced fixed-cost leverage. The retail segment posted operating losses of $2.2 in Q2 and $3.8 year to date.
- The company recorded $5.5 of non-cash impairment charges: $2.9 in retail, $0.7 in wholesale and $1.9 at Noa Home. It also recorded $2.7 of additional inventory valuation charges. Noa Home, acquired in 2022, was judged unlikely to achieve profitability; Bassett plans to cease operations and sell remaining inventory over the following months.
- Wholesale backlog was $19.4 at June 1, compared with $19.7 a year earlier. Retail backlog was $31.5, compared with $32.9. Retail written sales declined 2.5% in Q2 and 3.0% in the first half year over year.
Outlook, risks and contingencies
No specific sales or earnings guidance was provided. Management cited risks including consumer demand and retail traffic, higher interest rates and consumer credit availability, competition, input and delivery costs, tariffs and supply-chain disruption, store profitability and potential closures, further impairment charges from warehouse consolidation or Noa Home’s closure, cybersecurity, and exposure to commercial real estate values. The company is also exposed to raw-material, fuel and foreign-currency fluctuations. Management said pending legal and environmental matters were not expected, based on currently known facts, to materially harm financial position or future results.
The company said it believes available cash, expected operating cash flows and credit-line availability are sufficient to fund operations for the foreseeable future. That assessment should be considered alongside the limited stated facility availability and the potential inability to meet financial covenants if testing were triggered.
Important facts for investors to verify
- Whether demand, orders and backlog stabilize, and whether sales declines continue across wholesale and company-owned retail.
- Whether adjusted gross-margin improvements translate into GAAP profitability after inventory charges and impairment costs.
- The timing and total costs of closing Noa Home, including any further asset impairments or inventory markdowns.
- Actual borrowing availability under the credit facility, covenant-trigger mechanics and progress toward covenant compliance.
- Cash-flow recovery, planned capital spending, and the sustainability of dividends and share repurchases amid operating losses.
- Potential additional store or warehouse impairments, and exposure under licensee lease guarantees and owned retail properties.