Bassett Furniture Industries, Inc. — FY2020 Form 10-K
Business context and reporting period. Bassett designs, manufactures, sources, sells and retails branded home furnishings, and operates Zenith Freight Lines. Fiscal 2020 ended November 28, 2020 and comprised 52 weeks; fiscal 2019 comprised 53 weeks. Unless stated otherwise, amounts below are USD millions.
Financial performance
- Full year: Net sales were $385.9, down 14.6% from $452.1 in FY2019. Operating loss was $16.2 versus a $0.6 loss; net loss was $10.4 versus $1.9. Diluted loss per share was $1.05 versus $0.19.
- Fourth quarter: Sales were $118.4 versus $113.6 in the prior-year quarter; operating income was $10.0 versus an operating loss of $5.6, and net income was $6.5 versus a net loss of $5.1. Diluted EPS was $0.65 versus $(0.50).
- Margins and segments: Consolidated operating margin was negative 4.2% for FY2020. Wholesale sales declined 15.3% to $221.1; wholesale operating income, excluding unallocated special charges, was $4.6 versus $11.5. Company-owned retail sales declined 21.1% to $211.9, with a $9.5 segment operating loss versus a $7.0 loss. Logistics segment revenue was $75.2, down 6.1%, and operating income was $1.2 versus $1.9. Annual wholesale gross margin was 30.8% versus 33.6%; retail gross margin was 49.4% versus 51.0%.
- Cash flow: Cash provided by operations was $36.7 versus $9.8. Cash and cash equivalents increased $26.1 to $45.8; cash plus short-term investments totaled $63.5. Capital expenditures were $6.0, down from $17.4.
- Liquidity and obligations: Current assets were $160.7 and current liabilities $118.4; the current ratio was 1.36. The company reported no long-term debt. At year-end, its credit line had $47.1 available after standby letters of credit; the facility was scheduled to reduce from $50.0 to $25.0 maximum availability after December 31, 2020 and matures January 31, 2022. Operating lease liabilities were $139.1 and finance lease liabilities $2.4.
- Other balance-sheet measures: Total assets were $402.5, including $116.9 of operating-lease right-of-use assets; stockholders’ equity was $158.0. Inventory was $54.9, down from $66.3, while customer deposits rose to $39.8 from $25.3.
Material changes and unusual items
- COVID-19 closures and operating disruption sharply reduced second-quarter sales and drove the full-year loss. Stores, factories and many warehouses closed temporarily; all temporarily closed retail stores had reopened by mid-June.
- FY2020 operating results included $12.2 of asset impairment charges, $2.0 of goodwill impairment and $1.1 of litigation expense. The asset charges included impairments of five underperforming retail stores and a wholesale facility closure. Inventory valuation charges were $4.9 versus $2.3 in FY2019.
- The CARES Act enabled carryback of net operating losses and contributed to a $6.4 income tax benefit. The company returned to profitability in the third and fourth quarters; management reported $8.8 of net income and $42.4 of operating cash flow in the second half.
- FY2020 sales declines were concentrated in furniture and accessories, down 16.4%; logistics sales were nearly flat. Comparisons are affected by FY2019’s extra week.
- Cash preservation included an approximately 23% permanent workforce reduction, temporary pay cuts, reduced marketing and capital spending, landlord rent relief and reduced share repurchases. Temporary wage reductions were restored, and quarterly dividends resumed.
Outlook, risks and contingencies
- Wholesale orders for the second half of FY2020 increased 26% year over year. Wholesale backlog reached $54.9, versus $20.0 a year earlier; retail backlog was $57.0 versus $31.1. Management expects backlogs to decline gradually during 2021 as incoming orders moderate and manufacturing and shipping activity increase, but does not consider the recent order pace sustainable.
- Management cited COVID-related labor shortages and supply-chain disruption as constraints on production and delivery. Prolonged delays could lead to order cancellations and customer deposit refunds. Continued economic weakness, renewed restrictions and changing consumer demand remain risks.
- Management forecast FY2021 capital expenditures of approximately $16–$18, primarily for logistics tractors, technology and store updates. It planned increased digital advertising and website investment, and continued product simplification to support online sales. No specific revenue or earnings guidance was provided.
- Other risks include raw-material and freight costs, imported-product delays and tariffs, competition and declining store traffic, licensee credit and lease guarantees, Zenith’s driver and fuel exposure, and IT and data-security incidents. Two customers accounted for 29% of logistics revenue in FY2020, though no customer exceeded 10% of consolidated sales.
- The company reported $1.8 of contingent licensee lease guarantees and $1.1 of litigation reserves for wage-and-hour claims. Management stated that known claims and environmental matters were not expected to have a material adverse effect. The filing also reports a special dividend declared and paid after year-end, but the amount is not clear in the filing text provided.
Important facts for investors to verify
- Whether the unusually high wholesale and retail backlogs convert to delivered sales, and whether fulfillment delays cause cancellations or refunds.
- Whether the FY2020 operating loss and impairment charges are nonrecurring, and how retail profitability develops following store closures and staffing changes.
- Cash generation, inventory and customer-deposit trends, and liquidity after the credit line’s scheduled reduction in availability.
- Lease obligations, store-property values and possible further impairments; also verify the post-year-end special-dividend amount and payment details.
- Execution and returns from digital investment, online merchandising changes and the planned FY2021 capital expenditures.