(Bassett, Va.) March 23, 2006 Bassett Furniture Industries Inc. (Nasdaq:BSET) announced today its earnings for its fiscal quarter ended February 25, 2006.
Sales for the first quarter of 2006 were $86.5 million, up 7% from first quarter 2005 levels. Wholesale shipments into the Bassett Furniture Direct (BFD) channel increased by $4 million or 8%. Wholesale shipments into the BFD channel represented 70% of total wholesale shipments in the first quarter of 2006 as compared to 66% in the first quarter of 2005. Partially offsetting this increase was approximately $2 million of expected wholesale sales attrition with traditional furniture stores. Additionally, the acquisition of 15 BFD stores in mid 2005 led to a $4 million increase in net sales in the first quarter of 2006 as compared to the first quarter of 2005.
The Bassett Furniture Direct retail store program continues to grow with 133 stores (106 licensed and 27 corporately owned) in operation at the end of the first quarter. Licensees opened four stores during the quarter (one was closed) and the Company expects licensees to open 12 to 14 new BFD stores in the remainder of fiscal 2006.
Gross margins increased 5.6 percentage points in the first quarter of 2006 as compared to the first quarter of 2005 primarily due to an increased sales mix of imported products and the inclusion of the operating results of the 15 BFD stores acquired in 2005. During the first quarter of 2006, approximately 44% of wholesale shipments were imported products as compared to 32% in the first quarter of 2005. SG&A expenses increased primarily due to the additional 15 BFD stores acquired in 2005. This increase was expected as our retail segment typically incurs a greater percentage of SG&A as compared to our wholesale segment. Operating profit improved slightly in the first quarter of 2006 as compared to the first quarter of 2005. Operating profit of our wholesale segment more than doubled from $1.6 million in the first quarter of 2005 to $3.5 million in the first quarter of 2006.
Bassett's 27 corporate stores (reported as Bassett's retail segment) experienced challenging conditions at retail and incurred an operating loss of $2.1 million compared to an operating loss of $0.3 million in the first quarter of 2005 when Bassett's retail segment included only 14 stores. These additional losses relate almost entirely to the 15 stores acquired from three licensees in mid 2005. Net sales and margins were lower than planned primarily because the changes being made to drive more traffic, improve staffing, standardize pricing and streamline operations are taking longer than anticipated to implement. Bassett continues to take steps to merge the 27 corporate stores from 5 independent operating units into a centrally managed operation. These changes, which include a new management team and centralization of certain functions, have resulted in short term challenges but are expected to lead to improvement in the long-term.
The Company reported net income for the quarter of $2.3 million or $.19 per diluted share which compares to net income of $2.4 million or $.20 per share in the first quarter of 2005.
"We are pleased with our year-over-year wholesale division improvement," said Robert H. Spilman Jr., president and chief executive officer. "Actions taken over the past three years to restructure our wholesale business have resulted in better returns and we expect continued improvement. Our primary focus in 2006 continues to be enhancing the customer experience at our BFD stores, continuing to introduce stylish new products in these stores and improving the profitability of the BFDs."
The Company borrowed $5 million during the quarter primarily to fund increases in accounts receivable and inventories. The Company also received a dividend from its investment in an affiliate during the quarter and paid its regular quarterly dividend to shareholders during the quarter.
Bassett also announced that its Board of Directors has declared a regular quarterly dividend of $.20 per share payable on June 1, 2006, to shareholders of record on May 15, 2006.
Bassett Furniture Industries, Inc. is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With over 130 Bassett Furniture Direct stores, Bassett has leveraged its strong brand name in furniture into a growing network of licensed stores that focus on providing consumers with a friendly and professional environment for buying furniture and accessories. While the Company continues to sell its products to other retailers, the most significant growth vehicle for Bassett continues to be the Company's dedicated retail store program. Bassett's retail strategy encompasses affordable custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. For more information, visit the Company's website at www.bassettfurniture.com.
Certain of the statements in the immediately preceding paragraphs, particularly those preceded by, followed by or including the words "believes," "expects," "anticipates," "intends," "should," "estimates," or similar expressions, or those relating to or anticipating financial results for periods beyond the end of the first quarter of 2006, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended. For those statements, Bassett claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. In many cases, Bassett cannot predict what factors would cause actual results to differ materially from those indicated in the forward looking statements. Expectations included in the forward-looking statements are based on preliminary information as well as certain assumptions which management believes to be reasonable at this time. The following important factors affect Bassett and could cause those results to differ materially from those expressed in the forward looking statements: economic, competitive, governmental and other factors identified in Bassett's filings with the Securities and Exchange Commission, and the effects of national and global economic or other conditions and future events on the retail demand for home furnishings.
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