Bassett Furniture Industries, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended November 30, 2019. Fiscal 2019 included 53 weeks, versus 52 weeks in fiscal 2018; the extra week was in Q1. Amounts below are in U.S. dollars; financial figures are in millions unless otherwise noted.
Business context and financial performance
Bassett designs, manufactures, sources, sells and delivers branded home furnishings through wholesale channels, 70 company-owned and 33 licensee-owned Bassett Home Furnishings stores, and Zenith Freight Lines. More than 75% of products sold were U.S.-manufactured. Zenith generated about 60% of its revenue from non-Bassett customers.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $452.1 | $456.9 |
| Operating income (loss), GAAP | $(0.6) | $14.1 |
| Net income (loss) | $(1.9) | $8.2 |
| Diluted earnings (loss) per share | $(0.19) | $0.77 |
| Cash provided by operations | $9.8 | $29.9 |
| Cash and short-term investments at year-end | $37.1 | $56.1 |
| Long-term debt | None | None |
Fourth-quarter FY2019 sales were $113.6 million, operating loss was $5.6 million, and net loss was $5.1 million. The quarter included $1.9 million of goodwill impairment, $4.4 million of retail asset impairment, $0.7 million of litigation expense and $0.1 million of lease-exit costs.
Wholesale sales rose 2.0% to $261.1 million, with segment operating income of $11.5 million and a 33.6% gross margin. Company-owned retail sales were essentially flat at $268.7 million; the segment posted a $7.0 million operating loss. Comparable-store delivered sales fell 7.1% as reported, or 8.9% on an average-week basis. Zenith segment revenue declined 3.4% to $80.1 million, while operating income increased to $1.9 million.
At year-end, total assets were $275.8 million, current assets $136.8 million, current liabilities $72.3 million, and stockholders’ equity $178.7 million. The current ratio was 1.89. The company had $19.7 million of cash, $17.4 million of CDs, and $22.3 million of available capacity on its $25 million unsecured credit facility after letters of credit. Operating lease commitments totaled $184.7 million; these are obligations, not funded debt.
Changes versus prior year
- Consolidated sales decreased 1.0% despite the extra fiscal week. On an average-week basis, wholesale sales were essentially flat.
- GAAP operating results swung from $14.1 million income to a $0.6 million loss; net results moved from $8.2 million income to a $1.9 million loss. The $8.0 million of special operating charges contributed materially to the decline.
- Comparable retail sales weakened sharply: delivered sales declined 7.1% as reported, compared with a 1.6% decline in FY2018; on an average-week basis, FY2019 was down 8.9%. Retail operating loss widened from $0.3 million to $7.0 million.
- Wholesale gross margin improved to 33.6% from 33.1%, but SG&A rose to 29.2% of segment sales from 28.3%. Custom upholstery shipments grew 7.9%; leather, casegoods and accessories declined.
- Cash from operations fell by $20.1 million to $9.8 million. Management attributed the reduction primarily to inventory investment, working-capital timing and lower average-week comparable-store sales.
Outlook, commentary, risks and unusual items
- Management forecast FY2020 capital expenditures of approximately $10–$12 million, primarily for Zenith tractors, technology and store remodels or updates. No specific earnings or sales guidance was provided.
- Bassett planned broader distribution of its Bassett Outdoor line in late Q1 FY2020 and further investment in website navigation, online ordering and digital marketing. Management said pure e-commerce sales had historically been immaterial.
- The company had completed a three-year store expansion program and had no store openings planned at the time of filing; its stated focus was improving existing-store operations and profitability.
- FY2019 special operating charges totaled $8.041 million: $4.431 million in impairment of six underperforming stores, $1.926 million goodwill impairment in the retail reporting unit, $0.835 million for a voluntary early-retirement program, $0.700 million accrued for wage-and-hour claims, and $0.149 million of lease-exit costs. Retail goodwill was fully impaired.
- Tariffs on Chinese products and higher freight costs pressured retail margins; the company implemented price increases. Other exposures include consumer demand and housing conditions, intense online and store competition, raw-material and fuel volatility, sourcing and supply-chain disruption, and driver availability and regulatory risks at Zenith.
- Two customers represented 44% of Zenith’s consolidated logistics revenue in FY2019. No customer accounted for more than 10% of total consolidated sales. Licensee credit exposure and lease guarantees are additional risks.
- Management said liquidity was sufficient for the foreseeable future and reported compliance with credit-facility covenants. It expected adoption of the new lease standard in Q1 FY2020 to materially affect the balance sheet. The auditor gave an unqualified opinion on the financial statements and internal controls.
Most important facts for investors to verify
- Whether comparable-store sales stabilize after the FY2019 decline and whether the retail segment returns to profitability.
- Whether the $8.0 million in impairment and other special charges signals further store closures, impairments or litigation costs.
- Whether the FY2020 capital-spending plan and digital and outdoor-furniture initiatives produce improved sales and returns.
- Whether operating cash flow recovers and liquidity remains adequate after dividends, repurchases, capital spending and lease payments.
- The scale and balance-sheet presentation of lease liabilities upon adoption of the lease standard, and any cash exposure from licensee guarantees.
- Whether tariff, freight, raw-material, logistics-customer concentration and licensee-credit risks materially affect margins or cash generation.