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Bassett Announces Fiscal Third Quarter Results

BASSETT, Va., Sept. 29, 2022 (GLOBE NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq: BSET) announced today its results of operations for its third quarter ended August 27, 2022.

Fiscal 2022 Third Quarter Highlights of Continuing Operations
(Dollars in millions)

  Sales   Operating Income
  3rd Qtr   Dollar %   3rd Qtr % of   3rd Qtr % of
    2022   2021   Change Change 2022 Sales   2021 Sales
Consolidated (1) $ 118.0 $ 104.9   $ 13.1 12.5 %   $ 10.7 9.2 %   $ 5.0 4.8 %
Wholesale $ 79.0 $ 73.1   $ 5.9 8.3 %   $ 1.6 2.0 %   $ 4.5 6.2 %
Retail $ 70.9 $ 58.6   $ 12.3 21.0 %   $ 4.5 6.3 %   $ 0.9 1.5 %
(1) Our consolidated results include certain intercompany eliminations as well as a gain on the sale of real estate in Q3 2022 which is not
 included in our segment results. See Table 4, “Segment Information” below for an illustration of the effects of these items on our
 consolidated sales and operating income.                  

Consolidated revenue for our third quarter of 2022 came in at $118.0 million, a 12.5% increase compared to last year. Operating profit of $6.1 million improved by 22.1%, excluding the $4.6 million gain from the sale of our Southwest Freeway store in Houston, which brought the all-in income from operations to $10.7 million. Earnings per share of $0.82 was well ahead of $0.31 per share in 2021. We aggressively pursued our customer acquisition strategies while formulating business plans that take the uncertain business environment that clouds the outlook for 2023 into account. Nonetheless, we trust that the collective strength provided by our domestic manufacturing platform, international sourcing partnerships, dedicated distribution network, best in class logistics system, and burgeoning digital capabilities portend continued success for Bassett despite the challenges that currently exist for the U.S. economy.

Shipments from our wholesale segment grew by 8.1% with upholstery operations posting a 12.5% sales increase while wood operations grew a modest 1.3%. Said another way, shipments of domestically produced merchandise grew by 18.1% while imported product shipments declined by 15.7%. Significant for the period was the resurgent performance of our Newton, NC upholstery complex where combined shipments grew by 21.5% and divisional profitability returned to pre-covid levels. We are now producing goods with material costs that are fully reflected in the price for which they are invoiced as the rampant price increases that we have absorbed over the past two years have subsided. Further, we are excited by the early retail success of the new “Modern Casual” product range that hit stores in time for Labor Day, which we are counting on to help keep our production schedules on track moving forward. Fabric outages have improved significantly from the depths of the pandemic related chaos of 2021 and our lead times have markedly improved in the past few months. Shipments of our outdoor seating product continued its sizzling growth – this time at a rate of 30.3%. Amidst these strong performances is the problematic situation that we face with our imported Club Level product range. Recall that Club Level sales exploded in 2021 and that our inventory levels last year were such that we were out servicing our competition and enjoying robust shipments. Accordingly, we responded by ordering replenishment inventory at record levels into the teeth of the unprecedented ocean freight rate spiral. As sales of the product slowed at the beginning of April, incoming shipments, often months late due to Asian production delays, began to swell our inventory levels. Consequently, we have been aggressively discounting certain portions of our Club Level line and have suffered significant margin hits in so doing for the past four months. We expect this dynamic to persist for the next six months as we align inventory levels with current rates of sale. In the end, however, we remain committed to the long-term viability of the Club Level product line and value the open market account business that it will continue to provide. Also affecting our overall wholesale margins are the marketing spending levels that we have chosen to employ and, to a lesser extent, miscellaneous expenditures including the LIFO charges that have accompanied the inventory build that has characterized the twenty-one months since the end of covid dominated fiscal 2020. Overall inventory of $91.7 million at the end of the August quarter actually decreased for the first time since the pandemic build and should have peaked for the Bassett footprint for the foreseeable future. Returning our wholesale margins to their historical levels is an important element of successfully moving into 2023, although we do plan to continue our aggressive marketing spending as long as we can see corresponding upticks in business as a result.

Our corporate retail group extended their strong run of positive operating results, this time producing their “best ever” third quarter with $70.9 million of deliveries while providing $4.5 million of operating income to the cause. For the nine months, corporate retail revenue of $210.6 million represents an increase of 16.1% over 2021 and the $15.8 million of operating profit brought forth exceeds any full year bottom line performance to date. Delivered gross margins of 51.8% remained near our target range despite the headwinds that four store closings presented. Due to construction related supply chain issues, the opening of one of the contemplated replacement stores – this one in Dallas, was delayed from the original late August date until the new date in early November. In conjunction with the Dallas opening, we are remodeling two other Metroplex stores – Southlake and Frisco. There we are testing a “take with” strategy for certain accessory items and have designed a supporting fixturing package for all three Dallas area stores. Looking ahead to next year, we will incorporate these elements into the Austin, TX remodel project as well as into new stores that will open in Tampa, FL and in Houston. We are also considering another Florida location as well. In April, we opened a Regional Fulfillment Center (“RFC”) in Orlando to provide our stores and other customers with the ability to offer a two-week in-home delivery option to add a new selling opportunity to our incumbent design focused custom-made furniture business. We are excited to see the initial benefit of the quick ship capability and have subsequently opened another RFC in the Baltimore area to service the mid-Atlantic stores.

To begin our fourth quarter, on September 6th, we announced the acquisition of Montreal- based online furniture retailer, Noa Home Inc. Founded in 2016, Noa sells furniture, mattresses and accessory items online in four markets – Australia, Singapore, the UK, and Canada. Net revenue for their most current fiscal year was C$19.1 million. We have been enthusiastically collaborating with the Noa team over the past few months to identify and implement the synergies that do exist today and can be capitalized upon in the future between our two organizations. First on the list is to provide the capital to improve their in-stock positioning on their best-selling items. Next is to enter a 3PL warehouse in western Canada to open up the entire country for Noa distribution as they have heretofore only serviced Ontario and Quebec. We are simultaneously developing Bassett made upholstery products that can complement their existing best seller lineup and have entered initial production orders to ship to Noa warehouses. Once we make sure that we have begun to maximize the opportunity in their existing markets, we will start the planning process to introduce the Noa experience to the U.S. market sometime in 2023.

High inflation, rising mortgage rates, and a slowdown in the housing market have certainly taken a toll on the equity values of publicly traded furniture companies this year. We are definitely in the mode of “focusing on what we can control” as there are currently forces at work greater than Bassett in a macro sense. To that end, we invested in a robust marketing program for the recent three-week Labor Day promotion and the results were quite gratifying as our corporate retail stores recorded sales volumes better than both 2020 and 2021, which were, of course, very strong. We do believe that although our customer is being more judicious with their disposable income today than two years ago, their personal balance sheets are strong. So, there will be folks in the marketplace and we have to win them over. Meanwhile, Bassett has the financial strength to weather a downturn and an integrated strategy designed to provide multiple paths for growth in the future.

Robert H. Spilman, Jr., Chairman and CEO

About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc. (NASDAQ:BSET), is a leading manufacturer and marketer of high quality home furnishings. With 92 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. Bassett’s retail strategy includes stylish, custom-built furniture that features 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 and a logistics business specializing in home furnishings. For more information, visit the Company’s website at (BSET-E)

Certain of the statements in this release, particularly those preceded by, followed by or including the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “should,” “estimates,” or similar expressions, or those relating to or anticipating financial results or changes in operations for periods beyond the end of the third fiscal quarter of 2022, 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 (including, without limitation, the effects on revenue, supply and demand resulting from the duration and extent of the COVID-19 pandemic) and future events on the retail demand for home furnishings and the ability of Bassett’s customers and consumers to obtain credit; the success of marketing, logistics, retail and other initiatives; 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.

Table 1
Condensed Consolidated Statements of Income - unaudited
(In thousands, except for per share data)
  Quarter Ended   Nine Months Ended
  August 27, 2022   August 28, 2021   August 27, 2022   August 28, 2021
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
Net sales of furniture and accessories $ 118,012   100.0 %   $ 104,870   100.0 %   $ 364,582   100.0 %   $ 316,522   100.0 %
Cost of furniture and accessories sold   57,240   48.5 %     52,263   49.8 %     180,479   49.5 %     153,426   48.5 %
Gross profit   60,772   51.5 %     52,607   50.2 %     184,103   50.5 %     163,096   51.5 %
Selling, general and administrative expenses   54,695   46.3 %     47,631   45.4 %     160,536   44.0 %     145,473   46.0 %
Gain on sale of retail real estate   4,595   3.9 %     -   0.0 %     4,595   1.3 %     -   0.0 %
Income from operations   10,672   9.0 %     4,976   4.7 %     28,162   7.7 %     17,623   5.6 %
Other income (loss), net   (594 ) -0.5 %     (268 ) -0.3 %     (1,850 ) -0.5 %     (828 ) -0.3 %
Income from continuing operations before income taxes   10,078   8.5 %     4,708   4.5 %     26,312   7.2 %     16,795   5.3 %
Income tax expense   2,305   2.0 %     1,267   1.2 %     6,505   1.8 %     4,579   1.4 %
Income from continuing operations   7,773   6.6 %     3,441   3.3 %     19,807   5.4 %     12,216   3.9 %
Discontinued operations:                      
Income from operations of logistical services   -         (565 )       1,712         1,079    
Gain on disposal   (193 )       -         53,061         -    
Income tax expense   (48 )       (140 )       14,261         294    
Income (loss) from discontinued operations   (145 )       (425 )       40,512         785    
Net income $ 7,628       $ 3,016       $ 60,319       $ 13,001    
Basic earnings per share:                      
Income from continuing operations $ 0.84       $ 0.35       $ 2.08       $ 1.24    
Income (loss) from discontinued operations   (0.02 )       (0.04 )       4.26         0.08    
Basic earnings per share $ 0.82       $ 0.31       $ 6.34       $ 1.32    
Diluted earnings per share:                      
Income from continuing operations $ 0.84       $ 0.35       $ 2.08       $ 1.24    
Income (loss) from discontinued operations   (0.02 )       (0.04 )       4.26         0.08    
Diluted earnings per share $ 0.82       $ 0.31       $ 6.34       $ 1.32    

Table 2
Condensed Consolidated Balance Sheets
(In thousands)
Assets   August 27, 2022   November 27, 2021
Current assets        
Cash and cash equivalents   $ 66,870     $ 34,374  
Short-term investments     17,715       17,715  
Accounts receivable, net     20,950       20,567  
Inventories, net     91,681       78,004  
Recoverable income taxes     5,427       8,379  
Current assets of discontinued operations held for sale     -       11,064  
Other current assets     11,104       10,181  
Total current assets     213,747       180,284  
Property and equipment, net     75,513       69,168  
Other long-term assets        
Deferred income taxes, net     6,045       3,189  
Goodwill and other intangible assets     14,313       14,354  
Right of use assets under operating leases     86,809       95,955  
Long-term assets of discontinued operations held for sale     -       52,757  
Other     6,260       5,953  
Total long-term assets     113,427       172,208  
Total assets   $ 402,687     $ 421,660  
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable   $ 24,189     $ 23,988  
Accrued compensation and benefits     12,809       12,639  
Customer deposits     40,311       51,492  
Current portion of operating lease obligations     19,969       20,235  
Current liabilities of discontinued operations held for sale     -       16,095  
Other current liabilities and accrued expenses     12,746       9,770  
Total current liabilities     110,024       134,219  
Long-term liabilities        
Post employment benefit obligations     13,016       12,968  
Long-term portion of operating lease obligations     84,102       94,845  
Long-term liabilities of discontinued operations held for sale   -       16,210  
Other long-term liabilities     606       686  
Total long-term liabilities     97,724       124,709  
Stockholders’ equity        
Common stock     46,064       48,811  
Retained earnings     150,553       115,631  
Additional paid-in-capital     -       113  
Accumulated other comprehensive loss     (1,678 )     (1,823 )
Total stockholders' equity     194,939       162,732  
Total liabilities and stockholders’ equity   $ 402,687     $ 421,660  

Table 3  
Consolidated Statements of Cash Flows - unaudited  
(In thousands)  
    Nine Months Ended  
    August 27, 2022   August 28, 2021  
Operating activities:          
Net income   $ 60,319     $ 13,001    
Adjustments to reconcile net income to net cash provided by (used in)          
operating activities:          
Depreciation and amortization     8,732       10,458    
Gain on disposal of discontinued operations     (53,061 )     -    
Gain on sale of property and equipment     (4,603 )     (68 )  
Deferred income taxes     (2,856 )     1,053    
Other, net     1,425       478    
Changes in operating assets and liabilities          
Accounts receivable     57       (4,329 )  
Inventories     (13,677 )     (18,941 )  
Other current and long-term assets     2,961       (100 )  
Right of use assets under operating leases     15,881       18,857    
Customer deposits     (11,181 )     11,341    
Accounts payable and other liabilities     1,227       2,750    
Obligations under operating leases     (17,519 )     (20,823 )  
Net cash provided by (used in) operating activities     (12,295 )     13,677    
Investing activities:          
Purchases of property and equipment     (17,266 )     (7,141 )  
Proceeds from sale of property and equipment     8,226       101    
Proceeds from disposal of discontinued operations, net     84,534       -    
Other     (1,428 )     (1,173 )  
Net cash provided by (used in) investing activities     74,066       (8,213 )  
Financing activities:          
Cash dividends     (18,734 )     (6,321 )  
Proceeds from the exercise of stock options     -       42    
Other issuance of common stock     340       266    
Repurchases of common stock     (10,263 )     (5,566 )  
Taxes paid related to net share settlement of equity awards     -       (219 )  
Repayments of finance lease obligations     (618 )     (854 )  
Net cash used in financing activities     (29,275 )     (12,652 )  
Change in cash and cash equivalents     32,496       (7,188 )  
Cash and cash equivalents - beginning of period     34,374       45,799    
Cash and cash equivalents - end of period   $ 66,870     $ 38,611    

Table 4
Segment Information - unaudited
(In thousands)
    Quarter Ended   Nine Months Ended  
    August 27, 2022   August 28, 2021   August 27, 2022   August 28, 2021
Sales Revenue                
Wholesale sales of furniture and accessories   $ 78,959   $ 73,073   $ 249,945   $ 219,371
Less: Sales to retail segment   (31,833)   (26,779)   (95,976)   (84,303)
Wholesale sales to external customers   47,126   46,294   153,969   135,068
Retail sales of furniture and accessories   70,886   58,576   210,613   181,454
Consolidated net sales of furniture and accessories $ 118,012   $ 104,870   $ 364,582   $ 316,522
Operating Income                
Wholesale   $ 1,611   $ 4,466   $ 8,430   $ 14,622
Retail   4,529   917   15,754   3,663
Inter-company elimination   (63)   (407)   (617)   (662)
Gain on sale of real estate   4,595   -   4,595   -
Consolidated   $ 10,672   $ 4,976   $ 28,162   $ 17,623

J. Michael Daniel
Senior Vice President and
Chief Financial Officer
(276) 629-6614 – Investors

Peter D. Morrison
Vice President of Communications
(276) 629-6450 – Media

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Source: Bassett Furniture Industries, Incorporated