Bassett Furniture Industries
Sep 28, 2017
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Bassett Announces Fiscal Third Quarter Results

BASSETT, Va., Sept. 28, 2017 (GLOBE NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended August 26, 2017.

Fiscal 2017 Third Quarter Highlights

"We were pleased to post a 9.1% consolidated sales increase for the quarter," commented Robert H. Spilman, Jr., Chairman and Chief Executive Officer.  "All three of our operating segments posted revenue gains led by our retail division's 10% increase.  Although there were a number of unusual year over year comparisons, quarterly operating income grew by 7% on an adjusted basis despite increasing expense related to investments in our digital platform.  We look forward to opening two new stores in new markets in the current quarter, and entering fiscal 2018 with plans to open an additional six to eight new stores, while continuing our program to reposition older stores to better real estate when circumstances are appropriate.  Finally, we welcomed our Board of Directors' approval in July of a 10% increase in our quarterly dividend as part of our ongoing capital allocation strategy."

Wholesale Segment                                                                                        

Net sales for the wholesale segment were $61.8 million for the third quarter of 2017 as compared to $58.3 million for the third quarter of 2016, an increase of $3.5 million or 5.9%.  This increase was driven by a 5.1% increase in furniture shipments to the Bassett Home Furnishings network as compared to the prior year period and a 5.7% increase in furniture shipments to the open market (outside the Bassett Home Furnishings network).  Wholesale shipments of accessories, a much smaller component of the Company's wholesale revenues, increased 79% over the prior year quarter.  Gross margins for the wholesale segment were 33.6% for the third quarter of 2017 as compared to 35.4% for the prior year quarter. Excluding the effects of the previously mentioned foam settlement in 2016, the prior year gross margin would have been 33.0%.  Gross margins improved in both the Upholstery and Wood operations as compared to the prior year driven by increased operating efficiencies in the domestic operations along with greater leverage of fixed costs from higher sales levels.  Wholesale SG&A for the third quarter of 2017 was $16.3 million as compared to $15.0 million for the prior year period. SG&A as a percentage of sales increased to 26.4% as compared to 25.8% for the third quarter of 2016. This increase in SG&A as a percentage of sales was primarily driven by increased spending on the website and e-commerce strategy development along with higher accruals for incentive compensation, partially offset by greater leverage of other fixed costs due to higher sales volumes.  Operating income was $4.5 million or 7.2% of sales as compared to $5.6 million or 9.7% of sales in the prior year.  Excluding the effects of the previously mentioned foam settlement in 2016, the prior year operating income would have been $4.2 million or 7.2% for the prior year.

"Strong performances in our Wood and Upholstery divisions were largely offset at the comparable wholesale operating profit level by spending to enhance our website and E-commerce capabilities and by a favorable adjustment made to our executive compensation accrual last year," continued Spilman.  "Nevertheless, the fundamentals around the domestic manufacturing and importing of our product line were solid.  Domestic wood grew by 23% and profitability grew by 55% in the process.  Thanks to a strong showing in our Juvenile division, imported wood sales declined at a smaller rate than experienced in recent quarters.  We are also very encouraged by the initial retail sales of our newly-introduced Bella collection that hit the stores in August.  As has been the case for several years, we grew upholstery sales and profitability again this quarter.  Raw material price increases from our suppliers tempered profit gains in our domestic upholstery operations, however.  We are watching this trend closely as we move forward.  Retail sales of our Club Level by Bassett motion upholstery product line also contributed to wholesale sales gains and profitability."

"As mentioned, we are increasing our investments in our website and our E-commerce capabilities to continue to grow Bassett," added Spilman.  "There are several components to this strategy that merit discussion.  Simply increasing digital content is one component.  This means more presentations of the imagery of our product assortment to further expose consumers to our designs and our custom furniture capabilities, primarily through a more aggressive consumer e-mail campaign.  Secondly, technology enhancements on our website are being implemented to provide consumers with a faster and more interactive experience with our products and to allow them to visualize the myriad fabric and finish options that we offer.  This is paying off in the average time spent on our website by consumers when engaging with this technology and with a much increased likelihood that they will visit a Bassett store as a result.  The third component of our technology investments is designed to grow our accessory business and to round out our offerings as a complete resource for interior design.  Exposing these products more heavily on our website and creating a full E-commerce framework to complement our in-store home makeover capabilities will generate opportunities for Bassett to attract more customers more often.  We are encouraged by the early results that we have seen from these efforts and believe that the commitment to invest in these digital competencies will strengthen our store performance and the Bassett brand in general as we move forward."

Retail Segment

Net sales for the 62 Company-owned Bassett Home Furnishings stores were $67.4 million for the third quarter of 2017 as compared to $61.2 million for the third quarter of 2016, an increase of $6.2 million or 10%. The increase was due to a $1.1 million or 1.8% increase in comparable store sales along with a $5.1 million increase in non-comparable store sales. 

While the Company does not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator.  Written sales for comparable stores decreased by 2.9% for the third quarter of 2017 as compared to the third quarter of 2016. 

The consolidated retail operating profit for the third quarter of 2017 was $1.4 million as compared to $0.8 million for the third quarter of 2016, an increase of $0.6 million.  The 55 comparable stores generated operating income of $1.2 million for the quarter, or 2.0% of sales, as compared to $1.4 million, or 2.5% of sales, for the prior year quarter. Gross margins for comparable stores were 51.3% for the third quarter of 2017 as compared to 50.3% for the third quarter of 2016.  This increase is primarily due to improved pricing strategies and product mix.  SG&A expenses for comparable stores increased $1.4 million to $29.6 million or 49.3% of sales as compared to 47.9% of sales for the third quarter of 2016. The increase in SG&A was primarily due to a $0.5 million loss for expenses associated with settling employment claims along with higher advertising expenses and occupancy costs.

Non-comparable stores generated sales of $7.3 million with operating income of $0.1 million.  Included in the operating income was a $1.2 million gain on the sale of the Las Vegas store building that was closed during the third quarter.

"The third quarter in our corporate retail operation was relatively quiet as we prepared for a flurry of new store activity in the upcoming quarters," continued Spilman.  "Our June price increase began to positively offset retail gross margins with a 70 basis point year over year improvement.  Delivered retail comps increased 1.8% but written sales comped down 2.9% compared to last year's 7.9% comparable store improvement.  We suffered cannibalization in stores nearby our new Westbury, NY and King of Prussia, PA locations though the overall markets grew significantly in both cases.  Written sales were also affected by store closures in the south Texas market over the final three days of the quarter due to the approach of Hurricane Harvey.  While these factors contributed to our written sales shortfall, the decline in store sales that we began to see this summer have continued into the first four weeks of the current quarter.  We completed the store closing event in our original Las Vegas location during the quarter and began closing events in Dallas and Cincinnati.  We were pleased that we were able to hold our overall margins intact as the final liquidation of store inventories are detrimental to margins.  We plan to open new locations in each of these markets over the next few quarters."

Logistical Services Segment

Revenue for Zenith was $24.9 million for the third quarter of 2017 as compared to $23.0 million for 2016, an increase of $1.9 million or 8.4%.  Revenues to both Bassett and non-Bassett customers were higher quarter over quarter.  Zenith's operating expenses for the third quarter of 2017 were $23.7 million or 95.3% of revenue as compared to $22.3 million or 97.1% for the third quarter of 2016.  This resulted in operating profit of $1.2 million or 4.7% of sales for the current quarter as compared to $0.7 million or 2.9% of sales for the prior year quarter.  Improved operating efficiencies in the over the road freight operations were partially offset by increased costs in the home delivery operations primarily from the start-up of several local distribution hubs.

About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc. (NASDAQ:BSET), is a leading manufacturer and marketer of high quality home furnishings. With 91 company- and licensee-owned stores at the time of this release, Bassett has leveraged its strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. The most significant growth opportunity for Bassett continues to be the Company's dedicated retail store program. Bassett's retail strategy includes stylish, custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, free in-home design visits, and coordinated decorating accessories. Bassett also has a traditional wholesale business with more than 700 accounts on the open market, across the United States and internationally.  For more information, visit the Company's website at bassettfurniture.com. (BSET-E)

Certain of the statements in this release, 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 third fiscal quarter of 2017, 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 actual results to differ materially from those indicated in the forward looking statements:  the effects of national and global economic or other conditions and future events on the retail demand for home furnishings and the ability of Bassett's customers and consumers to obtain credit; and the economic, competitive, governmental and other factors identified in Bassett's filings with the Securities and Exchange Commission.  Any forward-looking statement that Bassett makes speaks only as of the date of such statement, and Bassett undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.  Comparisons of results for current and any prior periods are not intended to express any future trends or indication of future performance, unless expressed as such, and should only be viewed as historical data. 

 
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income - unaudited
(In thousands, except for per share data)
            
 Quarter Ended Nine Months Ended
 August 26, 2017 August 27, 2016 August 26, 2017 August 27, 2016
  Percent of  Percent of  Percent of  Percent of
 AmountNet Sales AmountNet Sales AmountNet Sales AmountNet Sales
            
Sales revenue:           
Furniture and accessories $100,152    $91,465     $294,144    $276,857   
Logistics 14,109     13,247     40,134     41,395   
Total sales revenue 114,261  100.0%  104,712  100.0%  334,278  100.0%  318,252  100.0%
            
Cost of furniture and accessories sold 45,320  39.7%  40,091  38.3%  132,199  39.5%  124,496  39.1%
            
Selling, general and administrative expenses excluding            
new store pre-opening costs 61,373  53.7%  56,800  54.2%  180,972  54.1%  173,845  54.6%
New store pre-opening costs 308  0.3%  281  0.3%  1,583  0.5%  727  0.2%
Income from operations 7,260  6.4%  7,540  7.2%  19,524  5.8%  19,184  6.0%
            
Gain on sale of investment -  0.0%  -  0.0%  3,267  1.0%  -  0.0%
Impairment of investment real estate -  0.0%  -  0.0%  (1,084 ) -0.3%  -  0.0%
Other loss, net (583) -0.5%  (647) -0.6%  (1,994) -0.6%  (1,904 ) -0.6%
Income before income taxes 6,677  5.8%  6,893  6.6%  19,713  5.9%  17,280  5.4%
            
Income tax provision 2,098  1.8%  2,728  2.6%  6,431  1.9%  6,496  2.0%
Net income$4,579  4.0% $4,165  4.0% $13,282  4.0% $10,784  3.4%
            
Basic earnings per share$0.43    $0.39    $1.25    $1.00   
            
Diluted earnings per share$0.43    $0.38    $1.24    $0.99   

  

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
 
                                                                      (Unaudited)      
Assets  August 26, 2017 November 26, 2016
Current assets    
Cash and cash equivalents $36,497  $35,144 
Short-term investments  23,125   23,125 
Accounts receivable, net  19,514   18,358 
Inventories, net  57,748   53,215 
Other current assets  8,808   10,727 
Total current assets  145,692   140,569 
     
Property and equipment, net  101,988   104,655 
     
Other long-term assets    
Deferred income taxes, net  8,235   8,071 
Goodwill and other intangible assets  17,431   17,360 
Other  6,410   7,612 
Total long-term assets  32,076   33,043 
Total assets $279,756  $278,267 
     
Liabilities and Stockholders' Equity    
Current liabilities    
Accounts payable $19,047  $21,281 
Accrued compensation and benefits  13,584   13,602 
Customer deposits  20,757   25,181 
Dividends payable  -   3,218 
Current portion of long-term debt  3,373   3,290 
Other accrued liabilities  13,554   10,441 
Total current liabilities  70,315   77,013 
     
Long-term liabilities    
Post employment benefit obligations  13,776   12,760 
Long-term debt  527   3,821 
Other long-term liabilities  4,412   3,968 
Total long-term liabilities  18,715   20,549 
     
     
Stockholders' equity    
Common stock  53,677   53,615 
Retained earnings  139,345   129,388 
Additional paid-in-capital  626   255 
Accumulated other comprehensive loss  (2,922)  (2,553)
Total stockholders' equity  190,726   180,705 
Total liabilities and stockholders' equity $279,756  $278,267 

   

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - unaudited
(In thousands)
                                           
  Nine Months Ended
  August 26, 2017 August 27, 2016
Operating activities:    
Net income $13,282  $10,784 
Adjustments to reconcile net income to net cash provided by    
(used in) operating activities:    
Depreciation and amortization  10,060   8,866 
Provision for asset impairment charge  1,084   - 
Gain on sale of property and equipment  (1,278)  (165)
Gain on sale of investment  (3,267)  -  
Tenant improvement allowances received from lessors  1,165   590 
Deferred income taxes  195   4,360 
Other, net  516   421 
Changes in operating assets and liabilities    
Accounts receivable  (1,018)  2,334 
Inventories   (4,190)  6,483 
Other current and long-term assets  1,919   (4,721)
Customer deposits  (4,424)  (3,867)
Accounts payable and accrued liabilities  654   (6,120)
Net cash provided by operating activities  14,698   18,965 
     
Investing activities:    
Purchases of property and equipment  (10,817)  (18,955)
Proceeds from sale of retail  real estate and property and equipment  4,474   632 
Proceeds from sale of investment  3,592   - 
Acquisition of retail licensee store   (655)  - 
Other  223   - 
Net cash used in investing activities  (3,183)  (18,323)
     
Financing activities:     
Cash dividends  (6,544)  (5,238)
Proceeds from the exercise of stock options  310   114 
Other issuance of common stock  83   182 
Repurchases of common stock  (83)  (3,989)
Taxes paid related to net share settlement of equity awards  (641)  (77)
Repayments of notes payable  (3,287)  (7,235)
Proceeds from equipment loans   -   7,384 
Net cash used in financing activities  (10,162)  (8,859)
Change in cash and cash equivalents  1,353   (8,217)
Cash and cash equivalents - beginning of period  35,144   36,268 
  . .
Cash and cash equivalents - end of period $36,497  $28,051 

 

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Segment Information - unaudited
(In thousands)
                                               
  Quarter Ended Nine Months Ended
  August 26, 2017 August 27, 2016 August 26, 2017 August 27, 2016
Net Sales        
Wholesale $61,757  $58,303  $186,025   $177,785 
Retail - Company-owned stores  67,402   61,216   196,139   184,754 
Logistical services  24,925   22,991   71,885   71,480 
Inter-company eliminations:         
Furniture and accessories  (29,007)  (28,054 )  (88,020)  (85,682)
Logistical services  (10,816)  (9,744)  (31,751)  (30,085)
Consolidated $114,261  $104,712  $334,278  $318,252 
         
Operating Income        
Wholesale $4,466  $5,648  $15,142  $14,380 
Retail  1,353   768   1,377   1,465 
Logistical services  1,164   674   1,736   2,079 
Inter-company elimination  277   450   1,269   1,260 
Consolidated $7,260  $7,540  $19,524  $19,184 

 

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES 
Rollforward of BHF Store Count 
        
         
  November 26,       August 26,
                                                                2016   Opened* Closed*   Transfers   2017
         
Company-owned stores 59 3 (1) 1  62
Licensee-owned stores 31 1 (1) (1)  30
         
Total 90 4 (2) -  92
         
* Does not include openings and closures due to relocation of existing stores within a market. 

 

 

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Supplemental Retail Information--unaudited
(In thousands)
            
 55  Comparable Stores 55  Comparable Stores
 Quarter Ended Quarter Ended Nine Months Ended   Nine Months Ended
 August 26, 2017 August 27, 2016 August 26, 2017 August 27, 2016
  Percent of  Percent of    Percent of  Percent of
 Amount   Net Sales    Amount   Net Sales Amount   Net Sales Amount   Net Sales
            
Net sales$60,137 100.0% $59,071  100.0% $180,584  100.0% $175,005  100.0%
            
Cost of sales 29,301 48.7%  29,342  49.7%  89,578  49.6%  87,678  50.1%
            
Gross profit 30,836 51.3%  29,729  50.3%  91,006  50.4%  87,327  49.9%
            
Selling, general and administrative expense*              29,622 49.3%  28,259  47.8%  87,355  48.4%  83,643   47.8%
            
Income from operations$1,214 2.0% $1,470  2.5% $3,651  2.0% $3,684  2.1%
            
            
 All Other Stores All Other Stores
 Quarter Ended Quarter Ended Nine Months Ended Nine Months Ended
 August 26, 2017 August 27, 2017 August 27, 2017 August 27, 2016
  Percent of  Percent of  Percent of  Percent of
 AmountNet Sales AmountNet Sales AmountNet Sales AmountNet Sales
            
Net sales$7,265 100.0% $2,145  100.0% $15,555  100.0% $9,749  100.0%
             
Cost of sales 3,796 52.3%  1,136  53.0 %  8,050  51.8%  5,756  59.0%
            
Gross profit 3,469 47.7%  1,009  47.0%  7,505  48.2%  3,993  41.0%
             
Selling, general and administrative expense 3,022 41.6%  1,430  66.7%  8,196  52.7%  5,485  56.3%
Pre-opening store costs** 308 4.2%  281  13.1%  1,583  10.2%  727  7.5%
            
Loss from operations$139 1.9% $(702) -32.8% $(2,274) -14.7% $(2,219) -22.8%
             
*Comparable store SG&A includes retail corporate overhead and administrative costs.       
**Pre-opening store costs include the accrual for straight-line rent recorded during the period between      
date of possesion and store opening  date, employee payroll and training costs prior to store opening       
and other various expenses incurred prior to store opening.          

 

J. Michael Daniel

Senior Vice President and 

Chief Financial Officer

(276) 629-6614 - Investors

 

Jay S. Moore

Director of Communications

(276) 629-6450 - Media 

Source: Bassett Furniture Industries, Inc.

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