Bassett Announces Fiscal Third Quarter Results

Published

BASSETT, Va., Oct. 03, 2019 (GLOBE NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq:  BSET) announced today its results of operations for its fiscal quarter ended August 31, 2019.

 
Fiscal 2019 Third Quarter Highlights(Dollars in millions)
 
  Sales   Operating Income (Loss)
  3rd Qtr   Dollar %   3rd Qtr % of   3rd Qtr % of
    2019   2018   Change Change   2019   Sales     2018 Sales
Consolidated (1) $ 109.4 $ 113.0   $ (3.5 ) -3.1 %   $ 3.4   3.1 %   $ 4.3 3.8 %
                       
Wholesale $ 62.7 $ 63.8   $ (1.1 ) -1.5 %   $ 3.0   4.9 %   $ 3.3 5.2 %
                       
Total Retail $ 66.5 $ 65.4   $ 1.1   1.7 %   $ (0.4 ) -0.6 %   $ 0.9 1.3 %
                       
61 Comparable Stores $ 60.0 $ 64.2   $ (4.2 ) -6.5 %   $ 0.4   0.6 %   $ 1.8 2.8 %
                       
Logistical Services (2) $ 18.9 $ 20.1   $ (1.2 ) -6.1 %   $ 0.6   3.2 %   $ 0.1 0.7 %
                       
(1) Our consolidated results include certain intercompany eliminations. See the “Segment Information” table below for an illustration
  of the effects of these intercompany eliminations on our consolidated sales and operating income.      
                       
(2) Current and prior period sales have been retrospectively restated to reflect the transfer of intercompany home delivery services from
  logistical services to retail. The effect of the transfer on operating income was not material.        
                       

Net income for the quarter was $2.2 million or $0.21 per diluted share as compared to $2.9 million or $0.28 per diluted share for the prior year quarter.  

“We turned in a much stronger sequential performance compared to this year’s second quarter,” observed Rob Spilman, Chairman and CEO.  “We are focused on a number of sales, marketing, and cost reduction measures and some of them began to bear fruit in our 3rd quarter ended August 31, 2019.  Still, we are operating in a challenging retail environment that demands a high degree of innovation and operational execution.  Although we generated an overall sales increase in our corporate retail division, we posted another quarterly decline in comparable retail store sales.  Improving this trend remains our primary focus.”

“Efforts to stimulate more web traffic and increase brand engagement produced encouraging results in the quarter,” continued Spilman.  “We now view the combination of web and store traffic holistically and believe that they go hand-in-hand.  Although our store traffic declined again during the quarter, it did so at a slower pace.  Web traffic improved by 16% over the prior year quarter.  We are experimenting with new digital outreach strategies on an individual store market basis and plan to invest more in these efforts going forward.  We opened one new store at the end of the period, thus completing our three-year store expansion initiative.  Although we will open another licensed location and move an existing corporate store during the fourth quarter, our attention has moved decidedly inward as we devote our energy to driving more sales through our existing fleet.  We believe that this thinking is particularly appropriate given the incessant speculation about an economic downturn that remains in the news.  In any event, preservation of our balance sheet is important.  During the quarter, we generated $6.9 million of operating cash flow, purchased $4.5 million of our stock, and paid $1.3 million in dividends.”

Wholesale Segment                                                                                        

Net sales for the wholesale segment were $62.7 million for the third quarter of 2019 as compared to $63.8 million for the third quarter of 2018, a decrease of $1.1 million or 1.8%.  This decrease was primarily driven by a 62% decrease in juvenile furniture shipments as the Company continues to exit this furniture line and a 4.4% decrease to the other open market dealers (outside the Bassett Home Furnishings network). In addition, the wholesale segment ceased selling accessories to the BHF network beginning at the start of the third quarter of 2019.  Both the corporate- and licensee-owned stores now purchase accessories directly from third-party accessory providers.  Wholesale sales of accessory items during the third quarter of 2018 were $0.9 million. These decreases were partially offset by a 2.2% increase in shipments to the Bassett Home Furnishings network and a $0.7 million increase in Lane Venture shipments.  Gross margin for the wholesale segment was 34.5% for the third quarter of 2019 as compared to 33.3% for the prior year quarter due to improved margins in both the wood and upholstery operations from certain raw material cost decreases, improved manufacturing efficiencies and realized container freight savings on imported wood product.  SG&A as a percentage of sales increased to 29.6% as compared to 28.1% for the third quarter of 2018.  This increase in SG&A as a percentage of sales was primarily driven by higher over-the-road freight costs along with higher marketing and other brand development costs, partially offset by lower incentive compensation costs.  Operating income was $3.0 million or 4.9% of sales for the third quarter of 2019 as compared to $3.3 million or 5.2% of sales in the prior year. 

“Although the imposition of tariffs has disrupted a portion of our wholesale business, we are well positioned for the most part as domestically produced products comprised almost 80% of our shipments for the quarter,” added Spilman.  “Our Bassett Custom Upholstery division, excluding Lane Venture, grew by 3% due in large part to retail sell through of our new $999 price point frames.  Lane Venture outdoor furniture shipments grew by 21% despite the tariff exposure that we have on woven wicker and aluminum frames.  We are pursuing alternative sourcing but finding vendors of commensurate quality outside of China is not easy.  Finally, sales of our imported Bassett Leather products were off by 5.6% as we are fighting through the tariff situation alongside our long time Chinese supplier of this product line.  Responding to input from our store designers, we look forward to the introduction of a new domestically produced custom motion program at the upcoming October Fall Furniture Market.”

“On the wood products front, sales of our domestically manufactured Bassett Custom wood division grew by 4.3%,” continued Spilman.  “The new Bench Made Midtown line began to ship in the quarter and already produced retail sales beginning with our Labor Day sales event.  We plan to continue to expand the Bench Made assortment based on the track record for sales growth that the line has recorded since its inception in October 2014.  Sales of our imported Bassett casegoods assortment declined by 17.6% due to the continuing wind down of our juvenile products line and weaker sales of our bedroom and formal dining groups.  Although imported wood casegoods remain an important facet of our overall assortment, we have struggled to post consistent sales increases in this area over the past couple of years.  We are working with our vendors to produce stronger price points as we move ahead.”

Retail Segment

Net sales for the 71 Company-owned Bassett Home Furnishings stores were $66.5 million for the third quarter of 2019 as compared to $65.4 million for the third quarter of 2018, an increase of $1.1 million or 1.7%. This increase was due to an increase of $5.3 million in non-comparable store sales as the Company has opened 9 stores over the last 18 months, partially offset by a $4.2 million or 6.5% decrease in sales for the 61 comparable stores.    

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 8.7% for the third quarter of 2019 as compared to the third quarter of 2018. 

The consolidated retail operating loss for the third quarter of 2019 was $0.4 million as compared to operating income of $0.9 million for the third quarter of 2018, a decrease of $1.3 million. This also compares to an operating loss of $3.0 million for the second quarter of 2019, a sequential improvement of $2.6 million. The 61 comparable stores generated operating income of $0.4 million for the quarter, or 0.6% of sales, as compared to $1.8 million, or 2.8% of sales, for the prior year quarter. Gross margins for comparable stores were 52.2% for both the third quarter of 2019 and 2018.  SG&A expenses for comparable stores decreased $0.8 million to $31.0 million or 51.6% of sales as compared to $31.8 million or 49.5% of sales for the third quarter of 2018.  The increase as a percentage of sales was primarily due to a de-leveraging of fixed costs from lower sales volumes and higher financing costs as more of the Company’s retail customers chose to finance their purchases through the Company’s third-party credit provider.  These increases were partially offset by various fixed cost decreases that resulted from changes in the Company’s cost structure.

Non-comparable stores generated sales of $6.5 million with an operating loss of $0.8 million as compared to sales of $1.3 million and an operating loss of $0.9 million in the prior year quarter.  As part of the $0.8 million loss for the third quarter of 2019, the Company incurred $0.3 million in new store pre-opening costs, a decrease of $0.2 million from the prior year.  In addition, the Company incurred $0.1 million of post opening startup losses for both the third quarter of 2019 and 2018. 

Early in September 2019, the Company closed its Gulfport, MS store due to continued operating losses and its desire to exit the geographic market.  The Company plans to market the real estate for sale and expects to receive proceeds in excess of its book value.

“We are seeking to improve this year’s comparable store sales trend on multiple fronts,” said Spilman.  “Although we saw the customary spike in sales around the Labor Day weekend, our year-over-year results have not improved thus far in the fourth quarter.  Positively, despite employing a more aggressive promotional strategy, corporate retail gross margins for the quarter held firm at 52.2%.  Our new Everyday Value assortment is building as we added a third upholstery group and our two opening price point bedrooms to the collection.  The everyday low-price products, combined with a 14 day in the home service promise, are intended to add an element of immediacy to supplement our in-home design capability, which has generated over 40% of our sales dollars so far this year.  Ultimately, the Everyday Value products will comprise 15% to 20% of the SKUs in the line.  We are pleased with the sales results of this effort since the initial introduction this spring. In store, we are evaluating the more successful elements of our Generation 3 store prototype, particularly the fixturing and the touch screen technology that we employ.  We plan to add these features to several of our current stores to enhance the in-store experience in the coming months.  We have also realigned our retail field organization to manage the stores with a more nimble and cost-effective staffing model.  We will begin to see the results of these moves toward the end of the fourth quarter and into the 2020 fiscal year.”

Logistical Services Segment                           

Revenues for Zenith were $18.9 million for the third quarter of 2019 as compared to $20.1 million for 2018, a decrease of $1.2 million or 6.1%.  This decrease was primarily due to the previously announced discontinuation of home delivery services to third-party customers along with lower over the road trucking revenue, partially offset by revenue increases in the third-party warehousing operations.  Zenith’s operating expenses were $18.3 million or 96.8% of sales as compared to $20.0 million or 99.3% of sales for the prior year period.     About Bassett Furniture Industries, Inc.Bassett Furniture Industries, Inc. (NASDAQ:BSET), is a leading manufacturer and marketer of high quality home furnishings. With 103 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 and a logistics business specializing in home furnishings.  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,” “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 2019, 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; 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.

 
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 31, 2019   August 25, 2018   August 31, 2019   August 25, 2018
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
                       
Sales revenue:                      
  Furniture and accessories $ 98,369       $ 99,807       $ 301,550       $ 298,605    
  Logistics   11,050         13,149         36,900         41,603    
  Total sales revenue   109,419   100.0 %     112,956   100.0 %     338,450   100.0 %     340,208   100.0 %
                       
Cost of furniture and accessories sold   42,246   38.6 %     44,821   39.7 %     133,953   39.6 %     133,750   39.3 %
                       
Selling, general and administrative expenses excluding                      
  new store pre-opening costs   63,519   58.1 %     63,279   56.0 %     197,495   58.4 %     192,986   56.7 %
New store pre-opening costs   254   0.2 %     532   0.5 %     1,117   0.3 %     1,435   0.4 %
Early retirement program   -   0.0 %     -   0.0 %     835   0.2 %     -   0.0 %
  Income from operations   3,400   3.1 %     4,324   3.8 %     5,050   1.5 %     12,037   3.5 %
                       
Other loss, net   (298 ) -0.3 %     (492 ) -0.4 %     (566 ) -0.2 %     (1,352 ) -0.4 %
Income before income taxes   3,102   2.8 %     3,832   3.4 %     4,484   1.3 %     10,685   3.1 %
                       
Income tax provision   945   0.9 %     887   0.8 %     1,274   0.4 %     4,364   1.3 %
Net income $ 2,157   2.0 %   $ 2,945   2.6 %   $ 3,210   0.9 %   $ 6,321   1.9 %
                       
Basic earnings per share $ 0.21       $ 0.28       $ 0.31       $ 0.59    
                       
Diluted earnings per share $ 0.21       $ 0.28       $ 0.31       $ 0.59    
                       

 
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
    (Unaudited)    
Assets   August 31, 2019   November 24, 2018
Current assets        
  Cash and cash equivalents   $ 14,638     $ 33,468  
  Short-term investments     17,643       22,643  
  Accounts receivable, net     20,640       19,055  
  Inventories, net     65,465       64,192  
  Other current assets     13,417       9,189  
Total current assets     131,803       148,547  
         
Property and equipment, net     104,908       104,863  
         
Other long-term assets        
  Deferred income taxes, net     3,251       3,266  
  Goodwill and other intangible assets     28,196       28,480  
  Other     7,258       6,485  
Total long-term assets     38,705       38,231  
Total assets   $ 275,416     $ 291,641  
         
Liabilities and Stockholders’ Equity        
Current liabilities        
  Accounts payable   $ 20,363     $ 27,407  
  Accrued compensation and benefits     11,046       12,994  
Customer deposits     22,484       27,157  
Other accrued liabilities     11,821       14,261  
Total current liabilities     65,714       81,819  
         
Long-term liabilities        
  Post employment benefit obligations     12,716       13,173  
  Other long-term liabilities     13,040       6,340  
Total long-term liabilities     25,756       19,513  
         
         
Stockholders’ equity        
  Common stock     50,578       52,638  
  Retained earnings     135,533       140,009  
  Accumulated other comprehensive loss     (2,165 )     (2,338 )
Total stockholders' equity     183,946       190,309  
Total liabilities and stockholders’ equity   $ 275,416     $ 291,641  
         

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - unaudited
(In thousands)
         
    Nine Months Ended
    August 31, 2019   August 25, 2018
Operating activities:        
Net income   $ 3,210     $ 6,321  
Adjustments to reconcile net income to net cash provided by (used in)        
  operating activities:        
Depreciation and amortization     10,092       9,920  
Gain on sale of property and equipment     (98 )     (130 )
Deferred income taxes     22       2,620  
Other, net     161       1,084  
Changes in operating assets and liabilities        
  Accounts receivable     (1,760 )     1,183  
  Inventories     (2,105 )     (5,349 )
  Other current and long-term assets     (1,986 )     (496 )
  Customer deposits     (4,673 )     (5,939 )
  Accounts payable and other liabilities     (4,922 )     2,416  
  Net cash provided by (used in) operating activities     (2,059 )     11,630  
         
Investing activities:        
Purchases of property and equipment     (10,651 )     (12,632 )
Proceeds from sale of property and equipment     119       2,488  
Proceeds from maturities of investments     5,000       482  
Cash paid for business acquisition     -       (15,556 )
Other     (506 )     (672 )
  Net cash used in investing activities     (6,038 )     (25,890 )
         
Financing activities:        
Cash dividends     (3,867 )     (7,492 )
Proceeds from the exercise of stock options     25       27  
Other issuance of common stock     246       264  
Repurchases of common stock     (6,845 )     (2,848 )
Taxes paid related to net share settlement of equity awards     -       (674 )
Repayments of notes payable     (292 )     (3,233 )
  Net cash used in financing activities     (10,733 )     (13,956 )
Change in cash and cash equivalents     (18,830 )     (28,216 )
Cash and cash equivalents - beginning of period     33,468       53,949  
    .   .
Cash and cash equivalents - end of period   $ 14,638     $ 25,733  
         

   
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES  
Segment Information - unaudited  
(In thousands)  
                   
    Quarter Ended   Nine Months Ended    
    August 31, 2019   August 25, 2018   August 31, 2019   August 25, 2018  
Net Sales                  
Wholesale   $ 62,690   $ 63,847   $ 198,602   $ 190,735  
Retail - Company-owned stores   66,539   65,430   198,736   198,773  
Logistical services (1)   18,899   20,119   60,743   62,770  
Inter-company eliminations:                  
  Furniture and accessories   (30,860)   (29,470)   (95,789)   (90,903)  
Logistical services (1)   (7,849)   (6,970)   (23,842)   (21,167)  
Consolidated   $ 109,419   $ 112,956   $ 338,450   $ 340,208  
                   
Operating Income                  
Wholesale   $ 3,044   $ 3,298   $ 10,399   $ 9,401  
Retail   (431)   858   (6,430)   971  
Logistical services   610   139   1,574   758  
Inter-company elimination   177   29   342   907  
Early retirement program   -   -   (835)   -  
Consolidated   $ 3,400   $ 4,324   $ 5,050   $ 12,037  
                   
                   
(1) Prior period sales have been retrospectively restated to reflect the transfer of          
intercompany home delivery services from logistical services to retail. The effect of the          
  transfer on operating income was not material.              
                   
                   

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES  
Rollforward of BHF Store Count  
           
             
    November 24,       August 31,
    2018 Opened* Closed* Transfers 2019
             
Company-owned stores   65 6 - - 71
Licensee-owned stores   32 1 - - 33
             
  Total   97 7 - 0 - 0 104
             
             
* 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)    
                           
  61 Comparable Stores   56 Comparable Stores    
  Quarter Ended   Quarter Ended   Nine Months Ended   Nine Months Ended    
  August 31, 2019   August 25, 2018   August 31, 2019   August 25, 2018    
    Percent of   Percent of   Percent of   Percent of  
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales    
                           
Net sales $ 60,018   100.0 %   $ 64,179   100.0 %   $ 174,538   100.0 %   $ 188,067   100.0 %    
                           
Cost of sales   28,686   47.8 %     30,650   47.8 %     85,572   49.0 %     90,917   48.3 %    
                           
  Gross profit   31,332   52.2 %     33,529   52.2 %     88,966   51.0 %     97,150   51.7 %    
                           
Selling, general and administrative expense*   30,975   51.6 %     31,750   49.5 %     90,557   51.9 %     91,937   48.9 %    
                           
  Income (loss) from operations $ 357   0.6 %   $ 1,779   2.8 %   $ (1,591 ) -0.9 %   $ 5,213   2.8 %    
                           
                           
  All Other Stores   All Other Stores    
  Quarter Ended   Quarter Ended   Nine Months Ended   Nine Months Ended    
  August 31, 2019   August 25, 2018   August 31, 2019   August 25, 2018    
    Percent of   Percent of   Percent of   Percent of  
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales    
                           
Net sales $ 6,521   100.0 %   $ 1,251   100.0 %   $ 24,198   100.0 %   $ 10,706   100.0 %    
                           
Cost of sales   3,163   48.5 %     700   56.0 %     12,006   49.6 %     5,356   50.0 %    
                           
  Gross profit   3,358   51.5 %     551   44.0 %     12,192   50.4 %     5,350   50.0 %    
                           
Selling, general and administrative expense   3,892   59.7 %     940   75.1 %     15,914   65.8 %     8,157   76.2 %    
Pre-opening store costs**   254   3.9 %     532   42.5 %     1,117   4.6 %     1,435   13.4 %    
                           
  Income (loss) from operations $ (788 ) -12.1 %   $ (921 ) -73.6 %   $ (4,839 ) -20.0 %   $ (4,242 ) -39.6 %    
                           
 *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 possession and store opening date, employee payroll and training costs prior to store opening              
  and other various expenses incurred prior to store opening.                        

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

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

 

 

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Bassett Furniture Industries, Incorporated

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