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BASSETT FURNITURE INDUSTRIES, INCORPORATED

(BSET)
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BASSETT FURNITURE INDUSTRIES INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

09/29/2022 | 09:36am EST

Safe-harbor, forward-looking statements:




This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of Bassett Furniture
Industries, Incorporated and subsidiaries. Such forward-looking statements are
identified by use of forward-looking words such as "anticipates", "believes",
"plans", "estimates", "expects", "aims" and "intends" or words or phrases of
similar expression. These forward-looking statements involve certain risks and
uncertainties. No assurance can be given that any such matters will be realized.
Important factors that could cause actual results to differ materially from
those contemplated by such forward-looking statements include:



• fluctuations in the cost and availability of raw materials, fuel, labor,

delivery costs and sourced products, including those which may result from

general price inflation, supply chain disruptions and the imposition of new or

  increased duties, tariffs, retaliatory tariffs and trade limitations with
  respect to foreign-sourced products



• competitive conditions in the home furnishings industry

• overall retail traffic levels in stores and on the web and consumer demand for

  home furnishings



• ability of our customers and consumers to obtain credit

• the profitability of the Bassett stores (independent licensees and

  Company-owned retail stores) which may result in future store closings



• ability to implement our Company-owned retail strategies and realize the

benefits from such strategies, including our initiatives to expand and improve

  our digital marketing capabilities, as they are implemented



• results of marketing and advertising campaigns

• effectiveness and security of our information and technology systems and

possible disruptions due to cybersecurity threats, including any impacts from a

  network security incident; and the sufficiency of our insurance coverage,
  including cybersecurity insurance



• future tax legislation, or regulatory or judicial positions

• ability to efficiently manage the import supply chain to minimize business

  interruption



• concentration of domestic manufacturing, particularly of upholstery products,

and the resulting exposure to business interruption from accidents, weather and

  other events and circumstances beyond our control



• the impact of the COVID-19 pandemic and resulting supply chain disruptions upon

our ability to maintain normal operations at our retail stores and

manufacturing facilities, and the resulting effects any future interruption of

those operations may have upon our financial condition, results of operations

and liquidity, as well as the impact of the pandemic upon general economic

conditions, including consumer spending and the strength of the housing market

  in the United States




Additionally, other risks that could cause actual results to differ materially
from those contemplated by such forward-looking statements are set forth in Part
I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the
fiscal year ended November 27, 2021.



You should keep in mind that any forward-looking statement made by us in this
report or elsewhere speaks only as of the date on which such forward-looking
statement is made. New risks and uncertainties arise from time to time, and it
is impossible for us to predict these events or how they may affect us. We have
no duty to, and do not intend to, update or revise the forward-looking
statements in this discussion after the date hereof, except as may be required
by law. In light of these risks and uncertainties, you should keep in mind that
the events described in any forward-looking statement made in this report or
elsewhere, might not occur.



                                 Page 23 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)



Overview



Bassett is a leading retailer, manufacturer and marketer of branded home
furnishings. Our products are sold primarily through a network of Company-owned
and licensee-owned branded stores under the Bassett Home Furnishings
("BHF") name, with additional distribution through other wholesale channels
including multi-line furniture stores, many of which feature Bassett galleries
or design centers. We also sell our products through our website at
www.bassettfurniture.com. We were founded in 1902 and incorporated under the
laws of Virginia in 1930. Our rich 120-year history has instilled the principles
of quality, value, and integrity in everything we do, while simultaneously
providing us with the expertise to respond to ever-changing consumer tastes and
meet the demands of a global economy.



With 95 BHF stores at August 27, 2022, we have leveraged our strong brand name
in furniture into a network of Company-owned and licensed stores that focus on
providing consumers with a friendly and casual environment for buying furniture
and accessories.  Our store program is designed to provide a single source home
furnishings retail store that provides a unique combination of stylish, quality
furniture and accessories with a high level of customer service.  In order for
the Bassett brand to reach markets that cannot be effectively served by our
retail store network, we also distribute our products through other wholesale
channels including multi-line furniture stores, many of which feature Bassett
galleries or design centers. We use a network of over 30 independent sales
representatives who have stated geographical territories. These sales
representatives are compensated based on a standard commission rate. We believe
this blended strategy provides us the greatest ability to effectively distribute
our products throughout the United States and ultimately gain market share.



The BHF stores feature custom order furniture, free in-home or virtual design
visits ("home makeovers") and coordinated decorating accessories.  Our
philosophy is based on building strong long-term relationships with each
customer.  Sales people are referred to as "Design Consultants" and are trained
to evaluate customer needs and provide comprehensive solutions for their home
decor.  Until a rigorous training and design certification program is completed,
Design Consultants are not authorized to perform in-home or virtual design
services for our customers.



During the second quarter of fiscal 2022, we opened our first regional
fulfillment center in Orlando, Florida where we are stocking our best sellers
for much quicker delivery. This adds an element of immediacy to our proven
platform of made to order custom furniture that has driven our strategy for the
past two decades. We plan to roll this out nationwide over the near term and our
next center recently opened near Baltimore, Maryland subsequent to the third
quarter of fiscal 2022.



In 2018, we added outdoor furniture to our offerings with the acquisition of the
Lane Venture brand. Our strategy is to distribute these products outside of our
BHF store network through a network of over 15 independent sales
representatives. Using Lane Venture as a platform, we developed the Bassett
Outdoor brand that is only marketed through the BHF store network. This allows
Bassett branded product to move from inside the home to outside the home to
capitalize on the growing trend of outdoor living.



We have factories in Newton, North Carolina that manufacture both stationary and
motion upholstered furniture for inside the home along with our outdoor
furniture offerings. We also have factories in Martinsville and Bassett,
Virginia that assemble and finish our custom bedroom and dining offerings. Late
in the third quarter of fiscal 2022, we purchased a facility which we had
formerly leased in Haleyville, Alabama where we manufacture aluminum frames for
our outdoor furniture. With the purchase, we also obtained two additional
buildings which will allow us to expand our footprint at that facility. Our
manufacturing team takes great pride in the breadth of its options, the
precision of its craftsmanship, and the speed of its manufacturing process. In
addition to the furniture that we manufacture domestically, we source most of
our formal bedroom and dining room furniture (casegoods) and certain leather
upholstery offerings from several foreign plants, primarily in Vietnam, Thailand
and China. Over 75% of the products we currently sell are manufactured in the
United States.



We consider our website to be the front door to our brand experience where
customers can research our furniture and accessory offerings and subsequently
buy online or engage with an in-store design consultant. Customer acquisition
resulting from our digital outreach strategies has significantly increased our
traffic to the website since 2019. The migration to digital brand research has
caused us to comprehensively evaluate all of our American made custom products.
While our Bench Made line of custom upholstery and custom bedroom and dining
products continue to be our most successful offerings, most of these items must
be purchased in a store as they are not conducive to web transactions due to the
number of options available. Consequently, we will continue to methodically
re-design each one of these important lines to best serve our customers online,
in the store or wherever our customer might be. Our intent is to continue to
offer the consumer custom options that will help them personalize their home but
to do so in an edited fashion that will provide a better web experience in the
research phase and will also allow the final purchase to be made either on the
web or in the store. While we work to make it easier to purchase either in store
or on-line, we will not compromise our in-store experience or the quality of our
in-home makeover capabilities.



                                 Page 24 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)



We are engaged in a multi-year cross-functional digital transformation
initiative with the first phase consisting of the examination and improvement of
our underlying data management processes. During the second quarter of 2022, we
implemented a comprehensive Product Information Management system which will
allow us to enhance and standardize our product development and data management
and governance processes during the second half of 2022. This will result in
more consistent data that our merchandizing and sales teams can use in analyzing
various product and sales trends in order to make better informed decisions. We
are also in the process of implementing a new eCommerce platform that we plan to
introduce in 2023.  The new web platform will leverage world class features
including enhanced customer research capabilities and streamlined navigation
that we believe will result in increased web traffic and sales.  We expect to
spend between $3,000 and $4,000 this fiscal year on these efforts.



Company-owned Retail Stores



As we continually monitor the performance of our Company-owned retail store
locations, we may occasionally determine that it is necessary to close
underperforming stores in certain markets. During the first quarter of fiscal
2022 we closed one retail store in Ontario, California, and we closed our store
in Wichita, Kansas, during the third quarter of fiscal 2022. During the fourth
quarter of fiscal 2022 we closed our store in Farmingdale, New York and
consolidated its operations with our existing store in nearby Westbury, New
York. All of the above-mentioned closures occurred at or near the lease
expirations.



During the second quarter of 2022, we acquired a 25,000 square foot store property in Tampa, Florida for $7,668. We are currently in the process of developing plans for store buildout and upfit with a planned opening date in the second quarter of 2023.




We also may occasionally identify opportunities to enhance our presence in
existing markets by relocating existing stores to better locations within the
same market. During the third quarter of fiscal 2022 we sold the store property
of one of our Houston, Texas locations for $8,217, net of closing costs, which
resulted in a gain of $4,595. For tax purposes, the sale of the Houston store
and the purchase of the Tampa store will be treated as a 1031 exchange where the
majority of the tax on the gain will be deferred. The store closure sale was
completed early in the fourth quarter of fiscal 2022 at which time the store was
officially closed. We expect to open a new leased store in a more upscale
shopping area in the vicinity of the closed store in the second quarter of 2023.
During the fourth quarter of fiscal 2022 at the end of the lease term, we expect
to close our Dallas, Texas store located at the intersection of McKinney and
Knox streets. We plan to open a replacement store in the nearby iconic Inwood
Village shopping center during the fourth quarter of 2022.



As of August 27, 2022, we had 61 Corporate-owned stores operating and expect to end fiscal 2022 with 59 stores.

Sale of the Assets of Zenith Freight Lines, LLC




During the first quarter of 2022, we entered into a definitive agreement to sell
substantially all of the assets of our wholly-owned subsidiary, Zenith Freight
Lines, LLC ("Zenith") to J.B. Hunt Transport Services, Inc. ("J.B. Hunt") for
$86,939 in cash. On February 28, 2022 the transaction was completed with us
receiving $85,521 after the payment of $418 in certain transaction costs and the
funding of $1,000 held in escrow. The final purchase price was subject to a
customary post-closing working capital adjustment, which was settled in the
amount of $987 and paid back to J.B. Hunt during the third quarter of fiscal
2022. During the nine months ended August 27, 2022, we recognized a pre-tax gain
of $53,061 on this transaction. As a result of the sale, the operations of our
former logistical services segment, which consisted entirely of the operations
of Zenith, are presented in the accompanying condensed consolidated statements
of income and in the following discussion as discontinued operations.



                                 Page 25 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Recent Development - Acquisition of Noa Home, Inc.




On September 2, 2022, we acquired the capital stock of Noa Home Inc. ("Noa"), a
mid-priced e-commerce furniture retailer headquartered in Montreal, Canada. Noa
has operations in Canada, Australia, Singapore and the United Kingdom and had
net revenues of approximately $15,300 (approximately C$19,100) for its most
recent fiscal year ended February 28, 2022. The initial purchase price of
approximately $5,900 (approximately C$7,700) included cash payments of
approximately $1,500 (approximately C$2,000) paid to the co-founders of Noa and
approximately $4,300 (approximately C$5,700) for the repayment of existing debt.
The Noa co-founders will also have the opportunity to receive additional annual
cash payments totaling approximately $1,000 per year (approximately C$1,330 per
year) for the following three fiscal years based on established increases in net
revenues and achieving certain internal EBITDA goals.



Results of Continuing Operations - Periods ended August 27, 2022 compared with the periods ended August 28, 2021:

Consolidated results of continuing operations for the three and nine months ended August 27, 2022 and August 28, 2021 are as follows:



                                  Quarter Ended                             Change                            Nine Months Ended                           Change
                    August 27, 2022           August 28, 2021        Dollars      Percent         August 27, 2022           August 28, 2021        Dollars      Percent

Net sales of
furniture and
accessories      $ 118,012       100.0 %   $ 104,870       100.0 %   $ 13,142         12.5 %   $ 364,582       100.0 %   $ 316,522       100.0 %   $ 48,060         15.2 %
Cost of
furniture and
accessories
sold                57,240        48.5 %      52,263        49.8 %     

4,977 9.5 % 180,479 49.5 % 153,426 48.5 %

27,053 17.6 % Gross profit 60,772 51.5 % 52,607 50.2 % 8,165 15.5 % 184,103 50.5 % 163,096 51.5 %

21,007 12.9 % SG&A expenses 54,695 46.3 % 47,631 45.4 % 7,064 14.8 % 160,536 44.0 % 145,473 46.0 %

     15,063         10.4 %
Gain on sale
of retail real
estate               4,595         3.9 %           -         0.0 %      4,595        100.0 %       4,595         1.3 %           -         0.0 %    

4,595 100.0 %

Income from operations $ 10,672 9.0 % $ 4,976 4.7 % $ 5,696 114.5 % $ 28,162 7.7 % $ 17,623 5.5 % $ 10,539 59.8 %

Analysis of Quarterly Results:




Total sales revenue for the three months ended August 27, 2022 increased $13,142
or 12.5% from the prior year period primarily due to a 21% increase in retail
sales through the Company-owned stores and a 6% increase in wholesale shipments
to the licensee store network.



Gross margins for the three months ended August 27, 2022 increased 130 basis
points from 2021 primarily due to a greater portion of total sales coming from
the Corporate retail segment, partially offset by lower margins in the retail
segment due to increased clearance activity from four store closure sales during
the quarter.



Selling, general and administrative ("SG&A") expenses as a percentage of sales
for the three months ended August 27, 2022 increased 90 basis points from 2021
primarily due to increased sales and marketing expenses and increased logistics
and warehouse costs, partially offset by greater leverage of fixed costs from
increased sales volumes.


During the third quarter of fiscal 2022, we also recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.

Analysis of Year-to-Date Results:




Total sales revenue for the nine months ended August 27, 2022 increased $48,060
or 15% from the prior year period primarily due to increases in wholesale
shipments to both the open market and the BHF store network, along with a 16%
increase in retail sales.



Gross margins for the nine months ended August 27, 2022 decreased 100 basis
points from 2021 primarily due to rising raw material and inbound freight costs,
including the impact of rising fuel prices, partially offset by greater fixed
cost leverage from increased sales. While these rising costs have been somewhat
mitigated by price increases implemented since the first quarter of 2021, the
increase in order backlogs and order fulfillment times limited our ability to
match revised pricing to manufacturing costs. Although no increases are
currently being contemplated, we will continue to monitor our costs to determine
if additional increases are warranted.



                                 Page 26 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)



SG&A expenses as a percentage of sales for the nine months ended August 27, 2022
decreased 200 basis points from 2021 primarily due to improved leverage of fixed
costs through higher sales levels.



During the first nine months of fiscal 2022, we also recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.




Segment Information



We have strategically aligned our business into two reportable segments as described below:




Wholesale. The wholesale home furnishings segment is involved principally in the
design, manufacture, sourcing, sale and distribution of furniture products to a
network of Bassett stores (Company-owned and licensee-owned retail stores) and
independent furniture retailers. Our wholesale segment includes our wood and
upholstery operations, which include Lane Venture, as well as all corporate
selling, general and administrative expenses, including those corporate expenses
related to both Company- and licensee-owned stores. We eliminate the sales
between our wholesale and retail segments as well as the imbedded profit in the
retail inventory for the consolidated presentation in our financial statements.
Also included in our wholesale segment are our short-term investments and our
holdings of retail real estate previously leased as licensee stores. The
earnings and costs associated with these assets are included in other loss, net,
in our condensed consolidated statements of operations.



Retail - Company-owned stores. Our retail segment consists of Company-owned
stores and includes the revenues, expenses, assets and liabilities (including
real estate) and capital expenditures directly related to these stores and the
Company-owned distribution network utilized to deliver products to our retail
customers.


Our former logistical services segment which represented the operations of Zenith is now presented as discontinued operations.

                                 Page 27 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Reconciliation of Segment Results to Consolidated Results of Operations




To supplement the financial measures prepared in accordance with GAAP, we
present gross profit by segment inclusive of the effects of intercompany sales
by our wholesale segment to our retail segment. Because these intercompany
transactions are not eliminated from our segment presentations and because we do
not present gross profit as a measure of segment profitability in the
accompanying condensed consolidated financial statements, the presentation of
gross profit by segment is considered to be a non-GAAP financial measure. In
addition, certain special gains or charges are included in consolidated income
from operations are not included in the measures of segment profitability. The
reconciliation of this non-GAAP financial measure to the most directly
comparable financial measure calculated and presented in accordance with GAAP is
presented below along with the effects of various other intercompany
eliminations on our consolidated results of operations.



                                                          Quarter Ended August 27, 2022
                             Non-GAAP Presentation                               Special             GAAP Presentation
                            Wholesale         Retail       Eliminations           Items                Consolidated
Net sales of furniture
and accessories            $    78,959       $ 70,886     $      (31,833 ) (1)   $      -           $           118,012
Cost of furniture and
accessories sold                54,501         34,166            (31,427 ) (2)          -                        57,240
Gross profit                    24,458         36,720               (406 )              -                        60,772
SG&A expense                    22,847         32,191               (343 ) (3)          -                        54,695
Gain on sale of real
estate                               -              -                  -            4,595   (4)                   4,595
Income from operations     $     1,611       $  4,529     $          (63 )       $  4,595           $            10,672




                                                                Quarter Ended August 28, 2021
                                    Non-GAAP Presentation                                 Special         GAAP Presentation
                                  Wholesale         Retail        Eliminations             Items            Consolidated

Net sales of furniture and
accessories                      $    73,073       $  58,576     $      (26,779 ) (1)   $          -     $           104,870
Cost of furniture and
accessories sold                      50,493          27,815            (26,045 ) (2)              -                  52,263
Gross profit                          22,580          30,761               (734 )                  -                  52,607
SG&A expense                          18,114          29,844               (327 ) (3)              -                  47,631
Income from operations           $     4,466       $     917     $         (407 )       $          -     $             4,976




                                                       Nine Months Ended August 27, 2022
                             Non-GAAP Presentation                               Special          GAAP Presentation
                            Wholesale        Retail        Eliminations           Items             Consolidated
Net sales of furniture
and accessories            $    249,945     $ 210,613     $      (95,976 ) (1)   $      -        $           364,582
Cost of furniture and
accessories sold                175,293        99,556            (94,370 ) (2)          -                    180,479
Gross profit                     74,652       111,057             (1,606 )              -                    184,103
SG&A expense                     66,222        95,303               (989 ) (3)          -                    160,536
Gain on sale of real
estate                                -             -                  -            4,595  (4)                 4,595
Income from operations     $      8,430     $  15,754     $         (617 )       $  4,595        $            28,162




                                                              Nine Months Ended August 28, 2021
                                   Non-GAAP Presentation                                   Special         GAAP Presentation
                                  Wholesale        Retail        Eliminations               Items            Consolidated

Net sales of furniture and
accessories                      $    219,371     $ 181,454     $      (84,303 ) (1)     $          -     $           316,522
Cost of furniture and
accessories sold                      148,640        87,444            (82,658 ) (2)                -                 153,426
Gross profit                           70,731        94,010             (1,645 )                    -                 163,096
SG&A expense                           56,109        90,347               (983 ) (3)                -                 145,473
Income from operations           $     14,622     $   3,663     $         (662 )         $          -     $            17,623



Notes to segment consolidation table:



(1)  Represents the elimination of sales from our wholesale segment to our

Company-owned BHF stores. (2) Represents the elimination of purchases by our Company-owned BHF stores from

our wholesale segment, as well as the change for the period in the

elimination of intercompany profit in ending retail inventory. (3) Represents the elimination of rent paid by our retail stores occupying

Company-owned real estate. the elimination of logisitcal services charged by

     Zenith to Bassett's wholesale segment as follows:
(4)  Represents the gain on the sale of the real estate at a former retail
     location.




                                 Page 28 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Wholesale Segment

Results for the wholesale segment for the periods ended August 27, 2022 and August 28, 2021 are as follows:



                             Quarter Ended                            Change                            Nine Months Ended                           Change
               August 27, 2022          August 28, 2021        Dollars      Percent         August 27, 2022           August 28, 2021        Dollars      Percent

Net sales    $ 78,959       100.0 %   $ 73,073       100.0 %   $  5,886          8.1 %   $ 249,945       100.0 %   $ 219,371       100.0 %   $ 30,574         13.9 %
Gross
profit (1)     24,458        31.0 %     22,580        30.9 %      1,878          8.3 %      74,652        29.9 %      70,731        32.2 %      3,921          5.5 %
SG&A
expenses       22,847        28.9 %     18,114        24.8 %      4,733         26.1 %      66,222        26.5 %      56,109        25.6 %     10,113         18.0 %

Income
from
operations   $  1,611         2.0 %   $  4,466         6.1 %   $ (2,855 )      -63.9 %   $   8,430         3.4 %   $  14,622         6.7 %   $ (6,192 )      -42.3 %



(1) Gross profit at the segment level is considered a Non-GAAP financial measure

due to the included effects of intercompany transactions. Refer to the

reconciliation of gross profit by segment to consolidated gross profit

      presented under the Reconciliation of Segment Results to Consolidated
      Results of Operations above.



Wholesale sales by major product category are as follows:



                                                                                          Quarter Ended
                                               August 27, 2022                                           August 28, 2021                            Total Change
                            External       Intercompany             Total             External       Intercompany             Total             Dollars      Percent
Bassett Custom Upholstery   $  30,885     $       20,641     $ 51,526        65.3 %   $  26,276     $       16,572     $ 42,848        58.6 %   $  8,678         20.3 %
Bassett Leather                 6,290                 24        6,314         8.0 %       9,142                  5        9,147        12.5 %     (2,833 )      -31.0 %
Bassett Custom Wood             5,564              5,995       11,559        14.6 %       5,745              5,440       11,185        15.3 %        374          3.3 %
Bassett Casegoods               4,387              5,173        9,560        12.1 %       5,131              4,762        9,893        13.5 %       (333 )       -3.4 %
Total                       $  47,126     $       31,833     $ 78,959       100.0 %   $  46,294     $       26,779     $ 73,073       100.0 %   $  5,886          8.1 %




                                                                                         Nine Months Ended
                                               August 27, 2022                                            August 28, 2021                             Total Change
                            External       Intercompany              Total             External       Intercompany              Total             Dollars      Percent
Bassett Custom Upholstery   $  96,636     $       64,075     $ 160,711        64.3 %   $  77,134     $       52,102     $ 129,236        58.9 %   $ 31,475         24.4 %
Bassett Leather                29,111                 48        29,159        11.7 %      26,898                 47        26,945        12.3 %      2,214          8.2 %
Bassett Custom Wood            17,207             18,927        36,134        14.5 %      17,921             18,117        36,038        16.4 %         96          0.3 %
Bassett Casegoods              11,015             12,926        23,941         9.6 %      13,115             14,037        27,152        12.4 %     (3,211 )      -11.8 %
Total                       $ 153,969     $       95,976     $ 249,945       100.0 %   $ 135,068     $       84,303     $ 219,371       100.0 %   $ 30,574         13.9 %



Analysis of Quarterly Results - Wholesale




Net sales for the three months ended August 27, 2022 increased $5,886 or 8.1%
from the prior year period due primarily to a 17% increase in shipments to the
BHF store network and a 16% increase in Lane Venture shipments. Shipments to the
open market were flat. Gross margins for the three months ended August 27, 2022
were comparable to the prior year with a 10 basis point increase as we were able
to recognize a greater portion of previously implemented price increases in
current period sales. This was offset by lower margins in the Bassett Leather
product line due to product discounting. As this product line is internationally
sourced with extended lead times, we received significant amounts of inventory
during the second and third quarters of 2022 just as product demand was
weakening due to the market downturn in home furnishings. We expect reduced
margins on this product line to continue over the next two quarters as we reduce
the inventory to a more normal level. SG&A expenses as a percentage of sales
increased 410 basis points primarily due to increased sales and marketing
expenses, employee compensation costs and logistics and warehouse costs
partially offset by greater leverage of fixed costs from increased sales
volumes.



                                 Page 29 of 36
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                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Analysis of Year-to-Date Results - Wholesale




Net sales for the nine months ended August 27, 2022 increased $30,574 or 14%
from the prior year period due primarily to increases in shipments of 13% and
12% to both the BHF store network and to the open market, respectively. Gross
margins for the nine months ended August 27, 2022 declined 230 basis points
compared to the prior year period as we experienced significant increases in
material and other production costs, partially offset by greater leverage of
fixed costs due to higher sales volumes. SG&A expenses as a percentage of sales
increased 90 basis points primarily due to increased sales and marketing
expenses, employee compensation costs and logistics and warehouse costs
partially offset by greater leverage of fixed costs from increased sales
volumes.



Wholesale Backlog



Since the beginning of the COVID pandemic in early 2020, Bassett and most of the
home furnishings industry have been faced with logistical challenges from
COVID-related labor shortages and supply chain disruptions creating significant
delays in order fulfillment and increased backlogs. Many of these issues have
subsided due to the industry slowdown in demand for home furnishings that
started during the second quarter of 2022. As a result of the slowdown, our
incoming order rates have decreased resulting in decreases in our wholesale
backlogs. While wholesale orders for the third quarter of 2022 decreased 22%
against the prior year period, they were comparable to the pre-pandemic level of
the third quarter of 2019. At August 27, 2022, the wholesale backlog totaled
$41,693 as compared to $60,134 at May 28, 2022, $78,135 at February 26, 2022,
$90,057 at November 27, 2021, and 92,839 at August 28, 2021. At February 29,
2020, the end of our last fiscal quarter prior to the impact of the COVID
pandemic upon our operations and the overall economy, our wholesale backlog was
$14,617.


Retail - Company-owned Stores Segment




Results for the retail segment for the periods ended August 27, 2022 and August
28, 2021 are as follows:



                               Quarter Ended                             Change                            Nine Months Ended                           Change
                 August 27, 2022          August 28, 2021        Dollars       Percent         August 27, 2022           August 28, 2021        Dollars
     Percent

Net sales      $ 70,886       100.0 %   $ 58,576       100.0 %   $ 12,310          21.0 %   $ 210,613       100.0 %   $ 181,454       100.0 %   $ 29,159         16.1 %
Gross profit
(1)              36,720        51.8 %     30,761        52.5 %      5,959          19.4 %     111,057        52.7 %      94,010        51.8 %     17,047         18.1 %
SG&A
expenses         32,191        45.4 %     29,844        50.9 %      2,347           7.9 %      95,303        45.3 %      90,347        49.8 %      4,956          5.5 %
Income
(loss) from
operations     $  4,529         6.4 %   $    917         1.6 %   $  3,612        N/M        $  15,754         7.5 %   $   3,663         2.0 %   $ 12,091        330.1 %



(1) Gross profit at the segment level is considered a Non-GAAP financial measure

due to the included effects of intercompany transactions. Refer to the

reconciliation of gross profit by segment to consolidated gross profit

presented under the Reconciliation of Segment Results to Consolidated Results

    of Operations above.



Retail sales by major product category are as follows:



                               Quarter Ended                            Change                            Nine Months Ended                           Change
                 August 27, 2022          August 28, 2021        Dollars      Percent         August 27, 2022           August 28, 2021        Dollars      Percent

Bassett

Custom

Upholstery $ 39,054 55.1 % $ 32,362 55.2 % $ 6,692

20.7 % $ 122,248 58.0 % $ 102,201 56.3 % $ 20,047

        19.6 %
Bassett
Leather             867         1.2 %        302         0.5 %        565        187.1 %       1,399         0.7 %         782         0.4 %        617         78.9 %
Bassett
Custom Wood      11,357        16.0 %      7,674        13.1 %      3,683         48.0 %      32,001        15.2 %      20,756        11.4 %     11,245         54.2 %
Bassett
Casegoods        10,404        14.7 %     10,394        17.7 %         10          0.1 %      27,884        13.2 %      32,175        17.7 %     (4,291 )      -13.3 %
Accessories,
mattresses
and other
(1)               9,204        13.0 %      7,844        13.4 %      1,360         17.3 %      27,081        12.9 %      25,540        14.1 %      1,541          6.0 %
Total          $ 70,886       100.0 %   $ 58,576       100.0 %   $ 12,310         21.0 %   $ 210,613       100.0 %   $ 181,454       100.0 %   $ 29,159         16.1 %



(1) Includes the sale of goods other than Bassett-branded products, such as

accessories and bedding, and also includes the sale of furniture protection

      plans.




                                 Page 30 of 36
--------------------------------------------------------------------------------



                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Quarterly Analysis of Results - Retail




Net sales for the three months ended August 27, 2022 increased $12,310 or 21%
from the prior year period. Written sales (the value of sales orders taken but
not delivered) declined 9.4% from the third quarter of 2021. Gross margins for
the three months ended August 27, 2022 decreased by 70 basis points as compared
to the prior year period, primarily due to increased clearance activity from
four store closure sales during the quarter. Selling, general and administrative
expenses as a percentage of sales for the three months ended August 27, 2022
decreased 550 basis points primarily due to greater leverage on fixed costs from
higher sales volumes.


Year-to-Date Analysis of Results - Retail




Net sales for the nine months ended August 27, 2022 increased $29,159 or 16%
from the prior year period. Written sales (the value of sales orders taken but
not delivered) declined 8.4% from the first nine months of 2021. Gross margins
for the nine months ended August 27, 2022 increased by 90 basis points as
compared to the prior year period, primarily driven by improved pricing
strategies and lower levels of promotional activity, partially offset by
increased clearance activity from five store closing events during the year.
Selling, general and administrative expenses for the nine months ended August
27, 2022 as a percentage of sales decreased by 450 basis points as compared to
the first nine months of 2021 primarily due to greater leverage on fixed costs
from higher sales volumes.



Retail Backlog



As previously discussed, since the beginning of the COVID pandemic in early
2020, Bassett and most of the home furnishings industry have been faced with
logistical challenges from COVID-related labor shortages and supply chain
disruptions creating significant delays in order fulfillment and increased
backlogs. Many of these issues have subsided due to the industry slowdown in
demand for home furnishings that started during the second quarter of 2022. As a
result of the slowdown, our written sales for the second and third quarters
decreased by 13% and 8.4%, respectively, as compared to the corresponding
periods of 2021. Written sales for the second and third quarters of 2022 are
comparable to the corresponding periods in 2019. At August 27, 2022, retail
backlog totaled $59,981 as compared to $71,073 at May 28, 2022, $84,685 at
February 26, 2022, $82,894 at November 27, 2021, and $73,489 at August 28, 2021.
At February 29, 2020, the end of our last fiscal quarter prior to the impact of
the COVID pandemic upon our operations and the overall economy, our retail
backlog was $29,775.



Discontinued Operations - Logistical Services

Results for the operations of Zenith, which was sold to J.B. Hunt at the beginning of the second quarter, for the periods ended August 27, 2022 and August 28, 2021 are as follows:



                                 Quarter Ended                               Change                           Nine Months Ended                           Change
                    August 27, 2022           August 28, 2021         Dollars      Percent        August 27, 2022          August 28, 2021         Dollars      Percent

Logistical
services
revenue         $     -             0.0 %   $ 14,036       100.0 %   $ (14,036 )     -100.0 %   $ 16,776       100.0 %   $ 40,116       100.0 %   $ (23,340 )      -58.2 %
Cost of
logistical
services              -             0.0 %     14,522       103.5 %     (14,522 )     -100.0 %     15,001        89.4 %     38,849        96.8 %     (23,848 )      -61.4 %
Other loss,
net                   -             0.0 %        (79 )      -0.6 %          79       -100.0 %        (63 )                   (188 )

Income from
discontinued
operations
before tax      $     -             0.0 %   $   (565 )      -4.0 %   $     565       -100.0 %   $  1,712        10.2 %   $  1,079         2.7 %   $     633         58.7 %




The amounts shown above represent the results of Zenith's business transactions
with third parties. Because the sale of Zenith was closed on the first business
day of the second fiscal quarter of 2022, operating results for that period are
insignificant.



Zenith also charged Bassett $9,121 for logistical services provided to our
wholesale segment during the nine months ended August 27, 2022, and $7,164 and
$23,409 for the three and nine months ended August 28, 2021. These shipping and
handling costs are included in selling, general and administrative expenses in
the accompanying condensed consolidated statements of income. We have entered
into a service agreement with J.B. Hunt for the continuation of these services
for a period of seven years following the sale of Zenith. Subsequent to the
sale, we have incurred $10,307 and $19,852 of expense during the three and nine
months ended August 27, 2022, respectively, for the performance of logistical
services by J.B. Hunt.



                                 Page 31 of 36
--------------------------------------------------------------------------------



                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)


Other Items Affecting Net Income



Other Loss, Net



Other loss, net, for the three and nine months ended August 27, 2022 was $594
and $1,850, respectively, compared to $268 and $828 for the three and nine
months ended August 28, 2021, a net increase of $336 over the prior year quarter
and $1,022 over the prior year to date. The net change was primarily due to
higher net costs of Company-owned life insurance.



Income Taxes



We calculate an anticipated effective tax rate for the year based on our annual
estimates of pretax income and use that effective tax rate to record our
year-to-date income tax provision.  Any change in annual projections of pretax
income could have a significant impact on our effective tax rate for the
respective quarter.



Our effective tax rate was 22.8% and 25.6% for the three and nine months ended
August 27, 2022, respectively, and 27.2% and 27.3% for the three and nine months
ended August 28, 2021, respectively. These effective rates differ from the
federal statutory rate of 21% primarily due to the effects of state income taxes
and various permanent differences, including those associated with Company-owned
life insurance, and tax of $550 for the nine months ended August 27, 2022
associated with non-deductible goodwill written off in connection with our sale
of Zenith, and tax deficiencies of $117 during the nine months ended August 28,
2021 arising from stock-based compensation.



Liquidity and Capital Resources



Cash Flows



Cash used in operations for the first nine months of fiscal 2022 was $12,295
compared to cash provided by operations of $13,677 for the first nine months of
fiscal 2021, representing a decrease of $25,972 in cash flows from operations.
Cash provided by the operating activities of our discontinued operations was
$1,681 for the first nine months of fiscal 2022 compared to $3,231 for the prior
year period, a decline of $1,550 as Zenith only operated during the first
quarter of fiscal 2022. Excluding the decline in operating cash flow from
discontinued operations, cash flows from continuing operations declined $24,422
from the prior year period. Cash flows from operating activities during the
first nine months of fiscal 2022 included the payment of $20,722 in estimated
taxes (net of refunds) compared with only $626 for the prior year period, the
increase primarily related to the taxable gain on the sale of Zenith. In
addition, cash flows from the collection of retail customer deposits declined
$22,522 compared to the first nine months of 2021 as the pace of written orders
has slowed compared to the prior year and we continue to reduce our retail order
backlog. Changes in working capital for the first nine months of fiscal 2022
were favorably impacted by slower growth in our investment in inventory as
compared to the prior year period.



Our overall cash position increased by $32,496 during the first nine months of
fiscal 2022, compared to a decline of $7,188 during the first nine months of
fiscal 2021, an increase of $39,684 from the prior year period. Excluding the
overall cash flow from discontinued operations, overall cash flow from
continuing operations increased $38,146 over the prior year period. Offsetting
the decline in cash flows from operations, net cash flows from investing
activities during the first nine months of fiscal 2022 increased $82,279 to
$74,066 of cash provided by investing activities compared to net cash used in
investing activities of $8,213 for the prior year period. This increase was
primarily due to net proceeds of $84,534 received from the sale of Zenith and
net proceeds of $8,217 received from the sale of retail real estate in Houston,
Texas, partially offset by a $10,125 increase in capital expenditures over the
prior year, including our purchase of our new retail store site in Tampa,
Florida. Net cash used in financing activities during the first nine months of
2022 increased $16,623 to a net use of $29,275 as compared to a net use of
$12,652 for the prior year period, primarily due to a special dividend of
$14,494 declared and paid during the second quarter of 2022 and a $4,697
increase in share repurchases to $10,263 during the first nine months of fiscal
2022 as compared to $5,566 repurchased during the first nine months of fiscal
2021. On March 9, 2022, our Board of Directors increased the amount authorized
under our existing share repurchase plan to $40,000, of which $30,857 remains
available for future purchases as of August 27, 2022. With cash and cash
equivalents and short-term investments totaling $84,585 on hand at August 27,
2022, expected future operating cash flows and the availability under our credit
line noted below, we believe we have sufficient liquidity to fund operations for
the foreseeable future.



                                 Page 32 of 36
--------------------------------------------------------------------------------



                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)



Debt and Other Obligations



Our bank credit facility provides for a line of credit of up to $25,000. At
August 27, 2022, we had $3,931 outstanding under standby letters of credit
against our line, leaving availability under our credit line of $21,069. In
addition, we had outstanding standby letters of credit with another bank
totaling $325 at August 27, 2022. The line bears interest at the One-Month Term
Secured Overnight Financing Rate ("One-Month Term SOFR") plus 1.5% and is
unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the
line, payable quarterly. Under the terms of the facility, we must maintain the
following financial covenants, measured quarterly on a rolling twelve-month
basis:



  ? Consolidated fixed charge coverage ratio of not less than 1.4 times,




  ? Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and




  ? Minimum tangible net worth of $140,000.




We were in compliance with these covenants at August 27, 2022 and expect to
remain in compliance for the foreseeable future. The credit facility will mature
on January 27, 2025, at which time any amounts outstanding under the facility
will be due.



We lease land and buildings that are used in the operation of our Company-owned
retail stores as well as in the operation of certain of our licensee-owned
stores, and we lease land and buildings used in our wholesale manufacturing
operations. We also lease local delivery trucks used in our retail segment. The
present value of our obligations for leases with terms in excess of one year at
August 27, 2022 is $104,899 and is included in our accompanying condensed
consolidated balance sheet at August 27, 2022. We were contingently liable under
licensee lease obligation guarantees in the amount of $1,871 at August 27, 2022.
Remaining terms under these lease guarantees range from approximately one to
three years. See Note 10 to our condensed consolidated financial statements for
additional details regarding our lease guarantees.



Investment in Retail Real Estate




We have a substantial investment in real estate acquired for use as retail
locations and occupied by Company-owned retail stores, including a site in
Tampa, Florida recently purchased for $7,668 which is expected to open for
business during the second quarter of fiscal 2023. Such real estate is included
in property and equipment, net, in the accompanying condensed consolidated
balance sheets and consists of eight properties with an aggregate square footage
of 203,465 and a net book value of $21,168 at August 27, 2022.



During the third quarter of fiscal 2022, sold one of our Company-owned store
locations in Houston, Texas for $8,217 net of closing costs. The sale closed on
June 24, 2022, and we expect to vacate the premises early in the fourth quarter
of fiscal 2022. This sale, together with our recent purchase of real property in
Tampa, Florida, will be treated as an exchange of like-kind property under
Section 1031 of the Internal Revenue Code of 1986, as amended, for the purpose
of deferring the taxable gain of approximately $4,300 arising from the sale of
the Houston property.


Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the fiscal year ended November 27, 2021.

Off-Balance Sheet Arrangements




We utilize stand-by letters of credit in the procurement of certain goods in the
normal course of business. In addition, we have guaranteed certain lease
obligations of licensee operators for some of their store locations. See Note 10
to our condensed consolidated financial statements for further discussion of
lease guarantees, including descriptions of the terms of such commitments and
methods used to mitigate risks associated with these arrangements.



Contingencies



We are involved in various legal and environmental matters which arise in the
normal course of business. Although the final outcome of these matters cannot be
determined, based on the facts presently known, it is our opinion that the final
resolution of these matters will not have a material adverse effect on our
financial position or future results of operations. See Note 9 to our condensed
consolidated financial statements for further information regarding certain
contingencies as of August 27, 2022.



                                 Page 33 of 36
--------------------------------------------------------------------------------



                     PART I-FINANCIAL INFORMATION-CONTINUED

          BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

                                AUGUST 27, 2022

             (Dollars in thousands except share and per share data)

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