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Financial, Retail

Bassett Announces Fiscal Second Quarter Results

Despite a softening in the industry, Bassett Furniture records a profit in the second quarter.

6/29/2023
BASSETT, Va. -- Bassett Furniture Industries, Inc. (Nasdaq: BSET) announced today its results of operations for its second quarter ended May 27, 2023.

Basset Chairman and CEO Robert H. Spilman, Jr., released the following letter to investors:

While our operating results were challenged by industry-wide soft demand, we successfully managed our balance sheet and maintained profitability during the second quarter. We are uncertain as to when the current sales environment will markedly improve, but we believe that our dedicated distribution strategy, domestic manufacturing platform, forthcoming e-commerce enhancements, and strong financial position will enable us to steadily grow revenue and shareholder returns as time goes on.

Consolidated revenue declined by 22% compared to last year but was 4.9% greater than the comparable period in 2019. Wholesale orders declined by 18% on a year-over-year basis. Operating cash flow of $5.8 million was fueled by an 11% reduction in total inventory. Operating income of $2.5 million included a $1.0 million valuation adjustment associated with contingent consideration as part of last year’s acquisition of e-commerce retailer Noa Home. Operating income was negatively impacted by a $1.1 million write-down of our Club Level motion product. A significant portion of the existing inventory has been slow moving and includes the high freight costs from mid-2022. We expect better margins in these products over the remainder of 2023.

Wholesale operating income of 11.3% of sales was hampered by the inventory adjustment mentioned above. Excluding this charge, wholesale operating margins would have been flat. Margins in our Newton, NC upholstery facility improved as we were able to recognize a greater portion of previously implemented price increases in current period sales partially offset by de-leverage of fixed costs due to lower sales volumes. This was offset by lower margins in our wood operations. Continuing the trend that was discussed at the end of the first quarter, manufacturing headcounts are now 20% below last year’s levels. Work schedules were considerably reduced during the period, although we have partially restored work hours recently in light of Memorial Day sales and new products sold during the High Point Furniture Market. In the end, our ability to return our wholesale margins to pre-pandemic levels is essential to our future success. The high freight costs from 2022 that have plagued our Club Level results have also hampered our import wood margins and, to a lesser extent, our outdoor performance. As our inventory of these items turns over, we will experience a margin boost based on today’s lower freight costs. New wood product introductions are crucial to improving plant fixed cost absorption and we plan to introduce an opening price point dining collection this fall to bolster our factory work schedules. We have already successfully added a new layer of modern casual styling to our domestic solid wood Bench Made assortment. Four new tables and seven dining chairs were responsible for the strongest wood product introduction that we have had for several seasons. This product will be featured with the drop of our consumer catalog in August before the Labor Day event in our stores and Bassett Design Centers (BDC). Our BDC network continues to grow and represents an increasingly important element of our portfolio with 101 individual accounts comprising 156 furniture floors that have space dedicated to the prescribed Bassett footprint.

Retail results were significantly behind last year’s record quarter but remained profitable. The closing sale associated with our northeast clearance center also negatively affected results in our retail segment. While store foot traffic declined during the quarter, our average sales ticket rose slightly. The interior design expertise embedded within our retail culture produced makeover sales that represented 47% of total written retail volume. The investment in our new flagship store in Tampa is well underway with an anticipated opening in time for Labor Day. On the same schedule is the dramatic remodel of our Austin store. Both of these locations will feature expanded design centers, new hospitality areas, home entertainment rooms, large outdoor furniture displays, and expanded assortments of accessories that will complement our “whole home” design offering.

Our organization is excited about the culmination of the work and investment that we have put into the launch of our new website that will take place before the end of our August quarter. Accompanying the installment of the new web platform has been the addition of new product data software that will permeate all of our new product development, engineering, marketing, and digital representation of our products on the website itself. This important project is a cornerstone of our growth strategy, and we believe that the expansion of our e-commerce business is crucial to our omni-channel future. Our new site is designed to increase traffic, reduce bounce and exit rates, increase virtual appointments, improve conversion rates and provide our customers with more payment options at checkout. Our most successful stores drive the highest level of e-commerce sales and these locations eagerly await the launch of this robust site. Our Bassett licensed stores as well as our open market dealer partners will also derive the benefit of increased digital commerce as they will fulfill the home delivery portion of these sales in their designated areas. And, for the first time, our partnership with logistics partner J.B. Hunt will give us nationwide home delivery capabilities for e-commerce orders.

On the topic of e-commerce, we continued our drive to profitability for our Noa Home division by reducing the loss from the first quarter by 83%. The Noa team pivoted to a less aggressive stance on digital advertising, reducing costs substantially while managing to hold onto most of the sales that they generated last year as a private company. We have begun to cross-pollinate the best thinking from the Bassett and Noa marketing teams as envisioned with the acquisition of Noa late last year. On tap for Noa is a broadened product assortment for North America and a test of limited geography in the U. S. market later this fall.

Combined outdoor furniture sales were behind last year but grew by 68% in relation to the same period in 2019. The growth reflects the addition of the Bassett Outdoor line and products manufactured in our Alabama aluminum facility along with organic growth in our legacy Lane Venture brand. The investment in the upgrades to the Alabama complex is almost complete and features a finished goods warehouse and a re-engineered plant layout to improve efficiency. In May, we debuted the Bassett Outdoor contract line at the HD Expo Show in Las Vegas targeting the hospitality segment. Also, we are excited to open our new Lane Venture showroom in Atlanta to coincide with the first Casual Furniture Market in Atlanta after the industry’s move there after many years of hosting the show in Chicago. Through a collaboration with Celerie Kemble, a nationally recognized interior designer, we plan to introduce several new and more design-oriented collections that will complement our existing outdoor offerings. To help with the expansion of our outdoor furniture sales effort, we have hired several specialists in the contract field as well as augmenting the Lane Venture residential sales team to further penetrate geographic sales territories.

Although we have addressed reduction in demand with cost rationalization in manufacturing, we have not significantly curtailed spending regarding growth initiatives. In areas such as new store development, website development, outdoor marketing costs, digital imagery creation and certain other marketing costs, we have elected to spend generally in sync with our original internal budgets in the interest of generating long term growth. We will continue to monitor this dynamic as the year unfolds. Meanwhile, we will conservatively manage our working capital, maintain or increase our dividend, and continue to repurchase our common stock when deemed appropriate.

Click here for full second quarter results.
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